United
States
Securities
and Exchange Commission
Washington,
D.C. 20549
FORM
10-Q
x
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act
of 1934
For
the
Quarterly Period Ended
September 30, 2008
OR
o
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act
of 1934
For
the
Transition Period From
________
to
________
.
Commission
file number
0-10593
ICONIX
BRAND GROUP, INC.
(Exact
name of registrant as specified in its charter)
Delaware
|
|
11-2481903
|
(State
or other jurisdiction of incorporation or
organization)
|
|
(I.R.S.
Employer Identification No.)
|
|
|
|
1450
Broadway, New York, NY
|
|
10018
|
(Address
of principal executive offices)
|
|
(Zip
Code)
|
(212)
730-0030
(Registrant's
telephone number, including area code)
(Former
name, former address and former fiscal year, if changed since last
report)
Indicate
by check mark whether the registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements
for
the past 90 days. Yes
x
No
¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company.
See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
|
Large accelerated filer
x
|
|
Accelerated filer
o
|
|
Non-accelerated filer
o
(Do not check if a smaller reporting company)
|
Smaller reporting company
o
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act)
Yes
o
No
x
Indicate
the number of shares outstanding of each of the issuer's classes of Common
Stock, as of the latest practicable date.
Common
Stock, $.001 Par Value – 58,287,411shares as of November 5,
2008.
INDEX
FORM
10-Q
Iconix
Brand Group, Inc. and Subsidiaries
|
|
|
|
Page No.
|
Part I.
|
|
Financial
Information
|
|
3
|
|
|
|
|
|
Item 1.
|
|
Financial
Statements
|
|
|
|
|
Condensed
Consolidated Balance Sheets – September 30, 2008 (unaudited) and
December 31, 2007
|
|
3
|
|
|
Unaudited
Condensed Consolidated Income Statements - Three and Nine Months
Ended
September 30, 2008 and 2007
|
|
4
|
|
|
Unaudited
Condensed Consolidated Statement of Stockholders' Equity - Nine Months
Ended September 30, 2008
|
|
5
|
|
|
Unaudited
Condensed Consolidated Statements of Cash Flows - Nine Months Ended
September 30, 2008 and 2007
|
|
6
|
|
|
Notes
to Unaudited Condensed Consolidated Financial Statements
|
|
8
|
|
|
|
|
|
Item 2.
|
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
|
|
21
|
|
|
|
|
|
Item 3.
|
|
Quantitative
and Qualitative Disclosures about Market Risk
|
|
26
|
|
|
|
|
|
Item 4.
|
|
Controls
and Procedures
|
|
27
|
|
|
|
|
|
Part II.
|
|
Other
Information
|
|
27
|
|
|
|
|
|
Item 1.
|
|
Legal
Proceedings
|
|
27
|
Item 1A.
|
|
Risk
Factors
|
|
27
|
Item 2.
|
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
|
30
|
Item 6.
|
|
Exhibits
|
|
31
|
|
|
|
|
|
Signatures
|
|
|
|
32
|
Part
I.
Financial Information
Item
1.
Financial Statements
Iconix
Brand Group, Inc. and Subsidiaries
Condensed
Consolidated Balance Sheets
(in
thousands, except par value)
|
|
September 30,
2008
|
|
December
31,
2007
|
|
|
|
(Unaudited)
|
|
|
|
Assets
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
Cash
(including restricted cash of $1,286 in 2008 and $5,205 in
2007)
|
|
$
|
83,932
|
|
$
|
53,272
|
|
Accounts
receivable
|
|
|
42,721
|
|
|
29,757
|
|
Deferred
income taxes
|
|
|
7,442
|
|
|
7,442
|
|
Prepaid
advertising and other
|
|
|
15,273
|
|
|
5,397
|
|
Total
Current Assets
|
|
|
149,368
|
|
|
95,868
|
|
Property
and equipment:
|
|
|
|
|
|
|
|
Furniture,
fixtures and equipment
|
|
|
7,148
|
|
|
2,903
|
|
Less:
Accumulated depreciation
|
|
|
(2,121
|
)
|
|
(1,610
|
)
|
|
|
|
5,027
|
|
|
1,293
|
|
Other
Assets:
|
|
|
|
|
|
|
|
Restricted
cash
|
|
|
15,881
|
|
|
15,186
|
|
Marketable
securities
|
|
|
10,660
|
|
|
10,920
|
|
Goodwill
|
|
|
133,428
|
|
|
128,898
|
|
Trademarks
and other intangibles, net
|
|
|
1,033,262
|
|
|
1,038,201
|
|
Deferred
financing costs, net
|
|
|
6,960
|
|
|
8,270
|
|
Non-current
deferred income taxes
|
|
|
10,668
|
|
|
21,158
|
|
Other
|
|
|
19,524
|
|
|
16,336
|
|
|
|
|
1,230,383
|
|
|
1,238,969
|
|
Total
Assets
|
|
$
|
1,384,778
|
|
$
|
1,336,130
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders' Equity
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$
|
16,489
|
|
$
|
15,804
|
|
Accounts
payable, subject to litigation
|
|
|
1,878
|
|
|
1,878
|
|
Deferred
revenue
|
|
|
2,285
|
|
|
6,162
|
|
Current portion of long-term debt
|
|
|
62,711
|
|
|
52,566
|
|
Total
current liabilities
|
|
|
83,363
|
|
|
76,410
|
|
|
|
|
|
|
|
|
|
Non-current
deferred income taxes
|
|
|
83,114
|
|
|
73,418
|
|
Long-term
debt, less current maturities
|
|
|
609,830
|
|
|
649,590
|
|
Long
term deferred revenue
|
|
|
9,152
|
|
|
8,792
|
|
Total
Liabilities
|
|
|
785,459
|
|
|
808,210
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
Equity
|
|
|
|
|
|
|
|
Common
stock, $.001 par value
-
shares authorized 150,000; shares issued 57,928 and 57,330
respectively
|
|
|
58
|
|
|
58
|
|
Additional
paid-in capital
|
|
|
489,267
|
|
|
469,941
|
|
Retained
earnings
|
|
|
113,958
|
|
|
60,941
|
|
Accumulated
other comprehensive loss
|
|
|
(2,597
|
)
|
|
(2,353
|
)
|
Less:
Treasury stock - 230 and 198 shares at cost, respectively
|
|
|
(1,367
|
)
|
|
(667
|
)
|
Total
Stockholders’ Equity
|
|
|
599,319
|
|
|
527,920
|
|
Total
Liabilities and Stockholders' Equity
|
|
$
|
1,384,778
|
|
$
|
1,336,130
|
|
See
Notes
to Unaudited Condensed Consolidated Financial Statements.
Iconix
Brand Group, Inc. and Subsidiaries
Unaudited
Condensed Consolidated Income Statements
(in
thousands, except earnings per share data)
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Licensing
and other revenue
|
|
$
|
55,135
|
|
|
42,681
|
|
|
162,502
|
|
|
112,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
|
18,558
|
|
|
13,400
|
|
|
55,589
|
|
|
30,130
|
|
Expenses
related to specific litigation
|
|
|
279
|
|
|
(39
|
)
|
|
665
|
|
|
1,055
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
36,298
|
|
|
29,320
|
|
|
106,248
|
|
|
81,408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
8,527
|
|
|
9,299
|
|
|
27,112
|
|
|
20,706
|
|
Interest
income
|
|
|
(948
|
)
|
|
(4,580
|
)
|
|
(3,362
|
)
|
|
(6,452
|
)
|
Equity
loss on joint venture
|
|
|
428
|
|
|
-
|
|
|
428
|
|
|
-
|
|
Other
expenses - net
|
|
|
8,007
|
|
|
4,719
|
|
|
24,178
|
|
|
14,254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
28,291
|
|
|
24,601
|
|
|
82,070
|
|
|
67,154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
9,974
|
|
|
7,608
|
|
|
29,053
|
|
|
22,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
18,317
|
|
|
16,993
|
|
|
53,017
|
|
|
44,529
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.32
|
|
|
0.30
|
|
|
0.92
|
|
|
0.79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.30
|
|
|
0.28
|
|
|
0.87
|
|
|
0.73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
57,841
|
|
|
56,801
|
|
|
57,662
|
|
|
56,569
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
61,091
|
|
|
61,380
|
|
|
61,241
|
|
|
61,289
|
|
See
Notes
to Unaudited Condensed Consolidated Financial Statements.
Iconix
Brand Group, Inc. and Subsidiaries
Unaudited
Condensed Consolidated Statement of Stockholders' Equity
Nine
Months Ended September 30, 2008
(in
thousands)
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
Other
|
|
|
|
|
|
|
|
Common Stock
|
|
Paid-in
|
|
Retained
|
|
Comprehensive
|
|
Treasury
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Earnings
|
|
Loss
|
|
Stock
|
|
Total
|
|
Balance
at January 1, 2008
|
|
|
57,330
|
|
$
|
58
|
|
$
|
469,941
|
|
$
|
60,941
|
|
$
|
(2,353
|
)
|
$
|
(667
|
)
|
$
|
527,920
|
|
Shares
issued on exercise of stock options
|
|
|
519
|
|
|
-
|
|
|
2,257
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,257
|
|
Shares
issued on vesting of restricted stock
|
|
|
79
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Shares
issued for earn-out on acquisition
|
|
|
144
|
|
|
-
|
|
|
1,877
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,877
|
|
Tax
benefit of stock option exercises
|
|
|
-
|
|
|
-
|
|
|
8,958
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
8,958
|
|
Amortization
expense in connection with restricted stock
|
|
|
-
|
|
|
-
|
|
|
6,099
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
6,099
|
|
Stock
option compensation
|
|
|
-
|
|
|
-
|
|
|
135
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
135
|
|
Shares
repurchased on vesting of restricted stock and exercise of stock
options
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(700
|
)
|
|
(700
|
)
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
53,017
|
|
|
-
|
|
|
-
|
|
|
53,017
|
|
Change
in fair value of cash flow hedge
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
16
|
|
|
-
|
|
|
16
|
|
Change
in fair value of securities
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(260
|
)
|
|
-
|
|
|
(260
|
)
|
Total
comprehensive income
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
52,773
|
|
Balance
at September 30, 2008
|
|
|
58,072
|
|
|
58
|
|
|
489,267
|
|
|
113,958
|
|
|
(2,597
|
)
|
|
(1,367
|
)
|
|
599,319
|
|
See
Notes
to Unaudited Condensed Consolidated Financial Statements.
Iconix
Brand Group, Inc. and Subsidiaries
Unaudited
Condensed Consolidated Statements of Cash Flows
(in
thousands)
|
|
Nine Months Ended September 30,
|
|
|
|
2008
|
|
2007
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
Net
income
|
|
$
|
53,017
|
|
|
44,529
|
|
Depreciation
of property and equipment
|
|
|
511
|
|
|
117
|
|
Amortization
of trademarks and other intangibles
|
|
|
5,485
|
|
|
3,869
|
|
Amortization
of deferred financing costs
|
|
|
1,316
|
|
|
847
|
|
Amortization
of convertible note discount
|
|
|
1,133
|
|
|
359
|
|
Stock-based
compensation expense
|
|
|
6,234
|
|
|
1,342
|
|
Bad
debt expense
|
|
|
1,351
|
|
|
1,606
|
|
Accrued
interest on long-term debt
|
|
|
983
|
|
|
419
|
|
Gain
on sale of trademarks
|
|
|
(2,625
|
)
|
|
-
|
|
Equity
loss on joint venture
|
|
|
428
|
|
|
-
|
|
Deferred
income taxes
|
|
|
20,186
|
|
|
22,442
|
|
Changes
in operating assets and liabilities, net of business
acquisitions:
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(14,315
|
)
|
|
(18,362
|
)
|
Prepaid
advertising and other
|
|
|
(10,876
|
)
|
|
(2,843
|
)
|
Other
assets
|
|
|
1,025
|
|
|
630
|
|
Deferred
revenue
|
|
|
(3,517
|
)
|
|
2,402
|
|
Accounts
payable and accrued expenses
|
|
|
2,795
|
|
|
1,057
|
|
Net
cash provided by operating activities
|
|
|
63,131
|
|
|
58,414
|
|
Cash
flows used in investing activities:
|
|
|
|
|
|
|
|
Purchases
of property and equipment
|
|
|
(4,245
|
)
|
|
(68
|
)
|
Additions
to trademarks
|
|
|
(546
|
)
|
|
(110
|
)
|
Earn-out
payment on acquisition
|
|
|
(4,453
|
)
|
|
-
|
|
Collection
on promissory note
|
|
|
1,000
|
|
|
-
|
|
Investment
in joint venture
|
|
|
(2,000
|
)
|
|
-
|
|
Payment
of accrued expenses related to acquisitions
|
|
|
(1,293
|
)
|
|
(1,537
|
)
|
Cash
and cash equivalents placed in escrow
|
|
|
-
|
|
|
(24,000
|
)
|
Purchase
of marketable securities
|
|
|
-
|
|
|
(196,400
|
)
|
Sale
of marketable securities
|
|
|
-
|
|
|
183,400
|
|
Acquisition
of Danskin
|
|
|
-
|
|
|
(70,799
|
)
|
Acquisition
of Rocawear
|
|
|
-
|
|
|
(204,233
|
)
|
Net
cash used in investing activities
|
|
|
(11,537
|
)
|
|
(313,747
|
)
|
Cash
flows provided by (used in) financing activities:
|
|
|
|
|
|
|
|
Proceeds
from long-term debt
|
|
|
-
|
|
|
493,531
|
|
Proceeds
from exercise of stock options and warrants
|
|
|
2,257
|
|
|
1,742
|
|
Proceeds
from sale of warrants
|
|
|
-
|
|
|
37,491
|
|
Shares
repurchased on vesting of restricted stock and exercise of stock
options
|
|
|
(700
|
)
|
|
|
|
Payment
of long-term debt
|
|
|
(30,748
|
)
|
|
(14,938
|
)
|
Payment
of expenses related to common stock issuance
|
|
|
-
|
|
|
(184
|
)
|
Deferred
financing costs
|
|
|
(6
|
)
|
|
(5,011
|
)
|
Excess
tax benefit from share-based payment arrangements
|
|
|
8,958
|
|
|
-
|
|
Payment
for purchase of convertible note hedge
|
|
|
-
|
|
|
(76,303
|
)
|
Restricted
cash - current
|
|
|
3,919
|
|
|
621
|
|
Restricted
cash - non-current
|
|
|
(695
|
)
|
|
(2,848
|
)
|
Net
cash provided by (used in) financing activities
|
|
|
(17,015
|
)
|
|
434,101
|
|
Net
increase in cash and cash equivalents
|
|
|
34,579
|
|
|
178,768
|
|
Cash,
beginning of period
|
|
|
48,067
|
|
|
73,572
|
|
Cash,
end of period
|
|
$
|
82,646
|
|
|
252,340
|
|
Balance
of restricted cash - current
|
|
|
1,286
|
|
|
3,647
|
|
Total
cash including current restricted cash, end of period
|
|
$
|
83,932
|
|
|
255,987
|
|
Supplemental
disclosure of cash flow information:
|
|
Nine Months Ended September 30,
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
Cash
paid during the period:
|
|
|
|
|
|
Income
taxes
|
|
$
|
5,325
|
|
$
|
1,576
|
|
Interest
|
|
$
|
22,811
|
|
$
|
17,950
|
|
Supplemental
disclosures of non-cash investing and financing
activities:
|
|
Nine Months Ended September 30,
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
Net
cost of hedge on convertible note
|
|
$
|
-
|
|
$
|
12,107
|
|
|
|
|
|
|
|
|
|
Acquisitions:
|
|
|
|
|
|
|
|
Common
stock issued
|
|
$
|
1,877
|
|
$
|
496
|
|
Warrants
issued - acquisition cost
|
|
$
|
-
|
|
$
|
4,931
|
|
See
Notes
to Unaudited Condensed Consolidated Financial Statements.
Iconix
Brand Group, Inc. and Subsidiaries
Notes
to
Unaudited Condensed Consolidated Financial Statements
September
30, 2008
1.
Basis of Presentation
The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10
of
Regulation S-X. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management of Iconix Brand Group, Inc.
("Company"), all adjustments (consisting primarily of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three months (“Current Quarter”) and the nine months (“Current
Nine Months”) ended September 30, 2008 are not necessarily indicative of the
results that may be expected for a full fiscal year.
Certain
prior period amounts have been reclassified to conform to the current period’s
presentation.
For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's Annual Report on Form 10-K for
the
year ended December 31, 2007 (“Fiscal 2007”).
2. Fair
Value Measurements
Statement
of Financial Accounting Standards (“SFAS”) No. 157 “Fair Value Measurements”
(“SFAS No. 157”), which the Company adopted on January 1, 2008, establishes a
framework for measuring fair value and requires expanded disclosures about
fair
value measurement. While SFAS No.157 does not require any new fair value
measurements in its application to other accounting pronouncements, it does
emphasize that a fair value measurement should be determined based on the
assumptions that market participants would use in pricing the asset or
liability. As a basis for considering market participant assumptions in fair
value measurements, SFAS No. 157 established the following fair value hierarchy
that distinguishes between (1) market participant assumptions developed based
on
market data obtained from sources independent of the reporting entity
(observable inputs) and (2) the reporting entity's own assumptions about market
participant assumptions developed based on the best information available in
the
circumstances (unobservable inputs):
Level
1:
Observable inputs such as quoted prices for identical assets or liabilities
in
active markets
Level
2:
Other inputs that are observable directly or indirectly, such as quoted prices
for similar assets or liabilities or market-corroborated inputs
Level
3:
Unobservable inputs for which there is little or no market data and which
requires the owner of the assets or liabilities to develop its own assumptions
about how market participants would price these assets or
liabilities
The
valuation techniques that may be used to measure fair value are as
follows:
(A)
Market approach
- Uses
prices and other relevant information generated by market transactions involving
identical or comparable assets or liabilities
(B)
Income approach
- Uses
valuation techniques to convert future amounts to a single present amount based
on current market expectations about those future amounts, including present
value techniques, option-pricing models and excess earnings method
(C)
Cost approach
- Based
on the amount that would currently be required to replace the service capacity
of an asset (replacement cost)
The
Company relies on a combination of Level 1 inputs generated by market
transactions of identical instruments and Level 3 inputs using an income
approach, to determine the fair value of certain financial instruments. The
Company’s assessment of the significance of a particular input to the fair value
measurement requires judgment and may affect the valuation of financial assets
and financial liabilities and their placement within the fair value hierarchy.
The following table summarizes the instruments measured at fair value at
September 30, 2008:
Carrying Amount as of
September 30, 2008
(000’s omitted)
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Valuation
Technique
|
|
Marketable
Securities
|
|
|
-
|
|
|
-
|
|
$
|
10,660
|
|
|
|
|
|
(B
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flow Hedge
|
|
$
|
71
|
|
|
-
|
|
|
-
|
|
|
|
|
|
(A
|
)
|
In
accordance with the provisions of FSP No. FAS 157-2, Effective Date of FASB
Statement No. 157, the Company has elected to defer implementation of SFAS
No.
157 as it relates to its non-financial assets and non-financial liabilities
until January 1, 2009 and is evaluating the impact, if any, this standard will
have on its financial statements.
Marketable
Securities
Marketable
securities, which are accounted for as available-for-sale, are stated at fair
value in accordance with SFAS No. 115, “Accounting for Certain Investments in
Debt and Equity Securities,” (“SFAS No. 115”) and consist of auction rate
securities. Temporary changes in fair market value are recorded as other
comprehensive income or loss, whereas other than temporary markdowns will be
realized through the Company’s income statement.
As
of
September 30, 2008, the Company held auction rate securities with a face value
of $13.0 million and a fair value of $10.7 million. Although these auction
rate
securities continue to pay interest according to their stated terms, during
the
Current Nine Months the Company recorded an unrealized pre-tax loss of $0.3
million in other comprehensive loss as a reduction to stockholders’ equity to
reflect a temporary decline in the fair value of the marketable securities
reflecting failed auctions due to sell orders exceeding buy orders. The Company
believes the decrease in fair value is temporary due to general macroeconomic
market conditions, as interest is being paid in full as scheduled, the Company
has the ability to hold the securities until an anticipated full redemption,
and
the underlying securities have maintained their investment grade rating. These
funds will not be available to the Company until a successful auction occurs
or
a buyer is found outside the auction process. As these instruments have failed
to auction and may not auction successfully in the near future, the Company
has
classified its marketable securities as non-current. The following table
summarizes the activity for the period:
Description
(000's omitted)
|
|
Auction
Rate
Securities
|
|
Balance
at January 1, 2008
|
|
$
|
10,920
|
|
Additions
|
|
|
-
|
|
Gains
(losses) reported in earnings
|
|
|
-
|
|
Gains
(losses) reported in other comprehensive income (loss)
|
|
|
(260
|
)
|
Balance
at September 30, 2008
|
|
$
|
10,660
|
|
Cash
Flow Hedge
On
July
26, 2007, the Company purchased a hedge instrument from Lehman Brothers Special
Financing Inc. (“LBSF”) to mitigate the cash flow risk of rising interest rates
on the Term Loan Facility (see Note 4). This hedge instrument caps the Company’s
exposure to rising interest rates at 6.00% for LIBOR for 50% of the forecasted
outstanding balance of the Term Loan Facility (“Interest Rate Cap”). Based on
management’s assessment, the Interest Rate Cap qualifies for hedge accounting
under SFAS 133 “Accounting for Derivative Instruments and Hedging Transactions”.
On a quarterly basis, the value of the hedge is adjusted to reflect its current
fair value, with any adjustment flowing through other comprehensive income.
The
fair value of this instrument is calculated based on Level 1 inputs. At
September 30, 2008, the fair value of the Interest Rate Cap was $71,000,
resulting in an other comprehensive gain of $16,000 for the Current Nine Months,
which is reflected in the Unaudited Condensed Consolidated Balance Sheet and
Statement of Stockholders’ Equity, respectively. On October 3, 2008, LBSF filed
a petition for bankruptcy protection under Chapter 11 of the United States
Bankruptcy Code. The Company currently believes that the LBSF bankruptcy filing
and its potential impact on LBSF will not have a material adverse effect on
the
Company’s financial position, results of operations or cash
flows.
3. Trademarks
and Other Intangibles, net
Trademarks
and other intangibles, net consist of the following:
|
|
|
|
September 30, 2008
|
|
December 31, 2007
|
|
|
|
Estimated
|
|
Gross
|
|
|
|
Gross
|
|
|
|
|
|
Lives in
|
|
Carrying
|
|
Accumulated
|
|
Carrying
|
|
Accumulated
|
|
(
000's omitted)
|
|
Years
|
|
Amount
|
|
Amortization
|
|
Amount
|
|
Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks:
|
|
|
|
|
|
|
|
|
|
|
|
Indefinite
life trademarks
|
|
|
indefinite
|
|
$
|
1,007,921
|
|
$
|
9,498
|
|
$
|
1,007,625
|
|
$
|
9,498
|
|
Definite
life trademarks
|
|
|
10-15
|
|
|
19,147
|
|
|
1,903
|
|
|
18,897
|
|
|
856
|
|
Non-compete
agreements
|
|
|
2-15
|
|
|
10,075
|
|
|
5,720
|
|
|
10,075
|
|
|
4,585
|
|
Licensing
agreements
|
|
|
1.5-6
|
|
|
21,093
|
|
|
8,115
|
|
|
21,093
|
|
|
4,897
|
|
Domain
names
|
|
|
5
|
|
|
570
|
|
|
308
|
|
|
570
|
|
|
223
|
|
|
|
|
|
|
$
|
1,058,806
|
|
$
|
25,544
|
|
$
|
1,058,260
|
|
$
|
20,059
|
|
Amortization
expense for intangible assets for the Current Nine Months and the nine months
ended September 30, 2007 (“Prior Year Nine Months”) was $5.5 million and $3.9
million, respectively. The trademarks of Candies®, Bongo®, Joe Boxer®, Rampage®,
Mudd®, London Fog®, Mossimo®, Ocean Pacific®, Danskin®, Rocawear®, Cannon®,
Royal Velvet®, Fieldcrest®, Charisma®, and Starter® have been determined to have
an indefinite useful life and accordingly, consistent with SFAS No. 142, no
amortization has been recorded in the Company's consolidated income statements.
Instead, each of these intangible assets will be tested for impairment at least
annually on an individual basis as separate single units of accounting, with
any
related impairment charge recorded to the statement of operations at the time
of
determining such impairment.
4. Debt
Arrangements
The
Company's debt is comprised of the following:
|
|
September 30,
|
|
December 31,
|
|
(000’s omitted)
|
|
2008
|
|
2007
|
|
Convertible
Senior Subordinated Notes
|
|
$
|
282,684
|
|
$
|
281,714
|
|
Term
Loan Facility
|
|
|
255,307
|
|
|
270,751
|
|
Asset-Backed
Notes
|
|
|
122,364
|
|
|
137,505
|
|
Sweet
Note (Note 7)
|
|
|
12,186
|
|
|
12,186
|
|
Total
Debt
|
|
$
|
672,541
|
|
$
|
702,156
|
|
Convertible
Senior Subordinated Notes
On
June
20, 2007, the Company completed the issuance of $287.5 million principal amount
of the Company's 1.875% convertible senior subordinated notes due 2012 (the
“Convertible Notes”) in a private offering to certain institutional investors.
The net proceeds received by the Company from the offering were approximately
$281.1 million.
The
Convertible Notes bear interest at an annual rate of 1.875%, payable
semi-annually in arrears on June 30 and December 31 of each year, beginning
December 31, 2007. The Convertible Notes will be convertible into cash and,
if
applicable, shares of the Company's common stock based on a conversion rate
of
36.2845 shares of the Company's common stock, subject to customary adjustments,
per $1,000 principal amount of the Convertible Notes (which is equal to an
initial conversion price of approximately $27.56 per share) only under the
following circumstances: (1) during any fiscal quarter beginning after September
30, 2007 (and only during such fiscal quarter), if the closing price of the
Company's common stock for at least 20 trading days in the 30 consecutive
trading days ending on the last trading day of the immediately preceding fiscal
quarter is more than 130% of the conversion price per share, which is $1,000
divided by the then applicable conversion rate; (2) during the five business
day
period immediately following any five consecutive trading day period in which
the trading price per $1,000 principal amount of the Convertible Notes for
each
day of that period was less than 98% of the product of (a) the closing price
of
the Company's common stock for each day in that period and (b) the conversion
rate per $1,000 principal amount of the Convertible Notes; (3) if specified
distributions to holders of the Company's common stock are made, as set forth
in
the indenture governing the Convertible Notes (“Indenture”); (4) if a “change of
control” or other “fundamental change,” each as defined in the Indenture,
occurs; (5) if the Company chooses to redeem the Convertible Notes upon the
occurrence of a “specified accounting change,” as defined in the Indenture; and
(6) during the last month prior to maturity of the Convertible Notes. If the
holders of the Convertible Notes exercise the conversion provisions under the
circumstances set forth, the Company will need to remit the lower of the
principal balance of the Convertible Notes or their conversion value to the
holders in cash. As such, the Company would be required to classify the entire
amount outstanding of the Convertible Notes as a current liability in the
following quarter. The evaluation of the classification of amounts outstanding
associated with the Convertible Notes will occur every quarter.
Upon
conversion, a holder will receive an amount in cash equal to the lesser of
(a)
the principal amount of the Convertible Note or (b) the conversion value,
determined in the manner set forth in the Indenture. If the conversion value
exceeds the principal amount of the Convertible Note on the conversion date,
the
Company will also deliver, at its election, cash or the Company's common stock
or a combination of cash and the Company's common stock for the conversion
value
in excess of the principal amount. In the event of a change of control or other
fundamental change, the holders of the Convertible Notes may require the Company
to purchase all or a portion of their Convertible Notes at a purchase price
equal to 100% of the principal amount of the Convertible Notes, plus accrued
and
unpaid interest, if any. If a specified accounting change occurs, the Company
may, at its option, redeem the Convertible Notes in whole for cash, at a price
equal to 102% of the principal amount of the Convertible Notes, plus accrued
and
unpaid interest, if any. Holders of the Convertible Notes who convert their
Convertible Notes in connection with a fundamental change or in connection
with
a redemption upon the occurrence of a specified accounting change may be
entitled to a make-whole premium in the form of an increase in the conversion
rate.
Pursuant
to Emerging Issues Task Force (“EITF”) 90-19, “Convertible Bonds with Issuer
Option to Settle for Cash upon Conversion” (“EITF 90-19”), EITF 00-19,
“Accounting for Derivative Financial Instruments Indexed to, and Potentially
Settled in, a Company's Own Stock” (“EITF 00-19”), and EITF 01-6, “The Meaning
of Indexed to a Company's Own Stock” (“EITF 01-6”), the Convertible Notes are
accounted for as convertible debt in the accompanying Condensed Consolidated
Balance Sheet and the embedded conversion option in the Notes has not been
accounted for as a separate derivative. For a discussion of the effects of
the
Convertible Notes and the Convertible Note Hedge and Sold Warrants discussed
below on earnings per share, see Note 6.
At
September 30, 2008, the balance of the Convertible Notes was $282.7 million.
The
Convertible Notes do not provide for any financial covenants.
In
connection with the sale of the Convertible Notes, the Company entered into
hedges for the Convertible Notes (“Convertible Note Hedges”) with respect to its
common stock with two entities, one of which was Lehman Brothers OTC Derivatives
Inc. (“Lehman OTC” and together with the other counterparty, the
“Counterparties”). Pursuant to the agreements governing these Convertible Note
Hedges, the Company purchased call options (the “Purchased Call Options”) from
the Counterparties covering up to approximately 10.4 million shares of the
Company's common stock of which 40% were purchased from Lehman OTC. These
Convertible Note Hedges are designed to offset the Company's exposure to
potential dilution upon conversion of the Convertible Notes in the event that
the market value per share of the Company's common stock at the time of exercise
is greater than the strike price of the Purchased Call Options (which strike
price corresponds to the initial conversion price of the Convertible Notes
and
is simultaneously subject to certain customary adjustments). On June 20, 2007,
the Company paid an aggregate amount of approximately $76.3 million of the
proceeds from the sale of the Convertible Notes for the Purchased Call Options,
of which $26.7 million was included in the balance of deferred income tax assets
at June 30, 2007 and is being recognized over the term of the Convertible Notes.
As of September 30, 2008, the balance of deferred income tax assets related
to
this transaction was $20.1 million.
The
Company also entered into separate warrant transactions with the Counterparties
whereby the Company, pursuant to the agreements governing these warrant
transactions, sold to the Counterparties warrants (the “Sold Warrants”) to
acquire up to 3.6 million shares of the Company's common stock of which 40%
were
sold to Lehman OTC, at a strike price of $42.40 per share of the Company's
common stock. The Sold Warrants will become exercisable on September 28, 2012
and will expire by the end of 2012. The Company received aggregate proceeds
of
approximately $37.5 million from the sale of the Sold Warrants on June 20,
2007.
Pursuant
to Emerging Issues Task Force (EITF) Issue No. 00-19 “Accounting for Derivative
Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own
Stock,” (EITF 00-19), and EITF Issue No. 01-06, “The Meaning of Indexed to a
Company’s Own Stock” (EITF 01-06), the Convertible Note Hedge and the proceeds
received from the issuance of the Sold Warrants were recorded as a charge and
an
increase, respectively, in additional paid-in capital in stockholders’ equity as
separate equity transactions. As a result of these transactions, the Company
recorded a net reduction to additional paid-in-capital of $12.1 million in
June
2007.
As
the
Convertible Note Hedge transactions and the warrant transactions were separate
transactions entered into by the Company with the Counterparties, they are
not
part of the terms of the Convertible Notes and will not affect the holders'
rights under the Convertible Notes. In addition, holders of the Convertible
Notes will not have any rights with respect to the Purchased Call Options or
the
Sold Warrants.
If
the
market value per share of the Company's common stock at the time of conversion
of the Convertible Notes is above the strike price of the Purchased Call
Options, the Purchased Call Options entitle the Company to receive from the
Counterparties net shares of the Company's common stock, cash or a combination
of shares of the Company's common stock and cash, depending on the consideration
paid on the underlying Convertible Notes, based on the excess of the then
current market price of the Company's common stock over the strike price of
the
Purchased Call Options. Additionally, if the market price of the Company's
common stock at the time of exercise of the Sold Warrants exceeds the strike
price of the Sold Warrants, the Company will owe the Counterparties net shares
of the Company's common stock or cash, not offset by the Purchased Call Options,
in an amount based on the excess of the then current market price of the
Company's common stock over the strike price of the Sold Warrants.
These
transactions will generally have the effect of increasing the conversion price
of the Convertible Notes to $42.40 per share of the Company's common stock,
representing a 100% percent premium based on the last reported sale price of
the
Company’s common stock of $21.20 per share on June 14, 2007.
In
May
2008 the Financial Accounting Standards Board (“FASB”) issued FASB Staff
Position (“FSP”) APB 14-1 “Accounting for Convertible Debt Instruments That May
Be Settled in Cash Upon Conversion (Including Partial Cash Settlements)”
(previously FSP APB 14-a), which will change the accounting treatment for
convertible securities that an issuer may settle fully or partially in cash.
Under the final FSP, cash-settled convertible securities will be separated
into
their debt and equity components. The value assigned to the debt component
will
be the estimated fair value, as of the issuance date, of a similar debt
instrument without the conversion feature. As a result, the debt will be
recorded at a discount to adjust its below-market coupon interest rate to the
market coupon interest rate for the similar debt instrument without the
conversion feature. The difference between the proceeds for the convertible
debt
and the amount reflected as the debt component represents the value of the
conversion feature and will be recorded as additional paid-in capital. The
debt
will subsequently be accreted to its par value over its expected life, with
an
offsetting increase in interest expense on the income statement to reflect
the
market rate for the debt component at the date of issuance.
Beginning
with fiscal 2009, and applied retrospectively to all past periods
presented, the Company will be required to adopt the provisions of FSP
APB 14-1 as they relate to the Convertible Notes. As compared to the
current accounting for the Convertible Notes, adoption of the proposal will
reduce long-term debt, increase stockholders’ equity, and reduce net income and
earnings per share. Adoption of the proposal would not affect the
Company's cash flows. The Company estimates that the impact of this change
in accounting policy will be approximately $13.1 million of non-cash interest
expense for the full year 2009 as compared to a $12.2 million of non-cash
interest expense the Company would have incurred for the full year 2008 had
APB
14-1 been adopted on January 1, 2008.
On
September 15, 2008 and October 3, 2008,
respectively, Lehman Brothers Holdings Inc. (“Lehman Holdings”) and its
subsidiary, Lehman OTC, filed for protection under Chapter 11 of the United
States Bankruptcy Code in the United States Bankruptcy Court in the Southern
District of New York. The Company currently believes that the bankruptcy filings
and their potential impact on these entities will not have a material adverse
effect on the Company’s financial position, results of operations or cash flows.
The Company will continue to monitor the bankruptcy filings of Lehman Holdings
and Lehman OTC. The terms of the Convertible Notes and the rights of the holders
of the Convertible Notes are not affected in any way by the bankruptcy filings
of Lehman Holdings or Lehman OTC.
Term
Loan Facility
In
connection with the acquisition of the Rocawear brand, in March 2007, the
Company entered into a $212.5 million credit agreement with Lehman Brothers
Inc., as lead arranger and bookrunner, and Lehman Commercial Paper Inc.
(“LCPI”), as syndication agent and administrative agent (the “Credit Agreement”
or “Term Loan Facility”). At the time, the Company pledged to LCPI, for the
benefit of the lenders under the Term Loan Facility (the “Lenders”), 100% of the
capital stock owned by the Company in its subsidiaries, OP Holdings and
Management Corporation, a Delaware corporation (“OPHM”), and Studio Holdings and
Management Corporation, a Delaware corporation (“SHM”). The Company's
obligations under the Credit Agreement are guaranteed by each of OPHM and SHM,
as well as by two of its other subsidiaries, OP Holdings LLC, a Delaware limited
liability company (“OP Holdings”), and Studio IP Holdings LLC, a Delaware
limited liability company ("Studio IP Holdings").
On
October 3, 2007, in connection with the acquisition of Official-Pillowtex LLC,
a
Delaware limited liability company (“Official-Pillowtex”), with the proceeds of
the Convertible Notes, the Company pledged to LCPI, for the benefit of the
Lenders, 100% of the capital stock owned by the Company in Mossimo, Inc., a
Delaware corporation (“MI”), and Pillowtex Holdings and Management Corporation,
a Delaware corporation (“PHM”), each of which guaranteed the Company’s
obligations under the Credit Agreement. Simultaneously with the acquisition
of
Official-Pillowtex, each of Mossimo Holdings LLC, a Delaware limited
liability company (“Mossimo Holdings”), and Official-Pillowtex guaranteed the
Company’s obligations under the Credit Agreement.
On
December 17, 2007, in connection with the acquisition of the Starter brand,
the
Company borrowed $63.2 million pursuant to the Term Loan Facility (the
“Additional Borrowing”). The net proceeds received by the Company from the
Additional Borrowing were $60 million.
The
guarantees are secured by a pledge to LCPI, for the benefit of the Lenders,
of,
among other things, the Ocean Pacific, Danskin, Rocawear, Mossimo, Cannon,
Royal
Velvet, Fieldcrest, Charisma, and Starter trademarks and related intellectual
property assets, license agreements and proceeds therefrom. Amounts outstanding
under the Term Loan Facility bear interest, at the Company’s option, at the
Eurodollar rate or the prime rate, plus an applicable margin of 2.25% or 1.25%,
as the case may be, per annum. The Credit Agreement provides that the Company
is
required to repay the outstanding term loan in equal quarterly installments
in
annual aggregate amounts equal to 1.00% of the aggregate principal amount of
the
loans outstanding, subject to adjustment for prepayments, in addition to an
annual payment equal to 50% of the excess cash flow from the subsidiaries
subject to the Term Loan Facility, as described in the Credit Agreement, with
any remaining unpaid principal balance to be due on April 30, 2013 (the “Loan
Maturity Date”). Upon completion of the Convertible Notes offering, the Loan
Maturity Date was accelerated to January 2, 2012. The Term Loan Facility can
be
prepaid, without penalty, at any time. On March 11, 2008, the Company paid
to
LCPI, for the benefit of the Lenders, $15.6 million, representing 50% of the
excess cash flow from the subsidiaries subject to the Term Loan Facility for
Fiscal 2007. As a result of such payment, the Company is no longer required
to
pay the quarterly installments described above. The Term Loan Facility requires
the Company to repay the principal amount of the term loan outstanding in an
amount equal to 50% of the excess cash flow of the subsidiaries subject to
the
Term Loan Facility for the most recently completed fiscal year. If the Term
Loan
Facility had required the Company to repay the principal amount of the term
loan
outstanding based on the excess cash flow of such subsidiaries for the Current
Nine Months rather than based upon the fiscal year end results, the Company
would have been required to pay approximately $28.8 million, representing 50%
of
the excess cash flow of such subsidiaries for that nine-month period. This
amount is now included in the Current portion of long-term debt. However, in
accordance with the terms of the Term Loan Facility as noted above, the
next calculation for determining the actual excess cash flow payment the Company
will be required to make under the Term Loan Facility will be based on the
results of the subsidiaries subject to the Term Loan Facility for the 12 months
ending December 31, 2008, and therefore the $28.8 million shown in Current
portion of long-term debt will more than likely change. The interest rate as
of
September 30, 2008 was 5.06%. At September 30, 2008, the balance of the Term
Loan Facility was $255.3 million. As of September 30, 2008, the Company
was in compliance with all material covenants set forth in the Credit Agreement.
The $272.5 million in proceeds from the Term Loan Facility were used by the
Company as follows: $204.0 million was used to pay the cash portion of the
initial consideration for the acquisition of the Rocawear brand; $2.1 million
was used to pay the costs associated with the Rocawear acquisition; $60 million
was used to pay the consideration for the acquisition of the Starter brand;
and
$3.9 million was used to pay costs associated with the Term Loan Facility.
The
costs of $3.9 million relating to the Term Loan Facility have been deferred
and
are being amortized over the life of the loan, using the effective interest
method. As of September 30, 2008, the subsidiaries subject to the Term Loan
Facility were Studio IP Holdings, OP Holdings, Mossimo Holdings and
Official-Pillowtex. As of September 30, 2008, these subsidiaries owned the
following trademarks: Danskin, Rocawear, Starter, Ocean Pacific/OP, Mossimo,
Cannon, Royal Velvet, Fieldcrest, and Charisma.
On
July
26, 2007, the Company purchased a hedge instrument to mitigate the cash flow
risk of rising interest rates on the Term Loan Facility. See Note 2 for further
information.
Asset-Backed
Notes
The
financing for certain of the Company's acquisitions has been accomplished
through private placements by its subsidiary, IP Holdings LLC ("IP
Holdings") of asset-backed notes ("Asset-Backed Notes") secured
by intellectual property assets (trade names, trademarks, license agreements
and
payments and proceeds with respect thereto relating to the Candie’s, Bongo, Joe
Boxer, Rampage, Mudd and London Fog brands) of IP Holdings. At September 30,
2008, the balance of the Asset-Backed Notes was $122.4
million.
Cash
on
hand in the bank account of IP Holdings is restricted at any point in time
up to
the amount of the next debt principal and interest payment required under the
Asset-Backed Notes. Accordingly, $1.3 million and $5.2 million as of September
30, 2008 and December 31, 2007, respectively, have been disclosed as restricted
cash within the Company's Current assets. Further, in connection with IP
Holdings' issuance of Asset-Backed Notes, a reserve account has been established
and the funds on deposit in such account will be applied to the final principal
payment with respect to the Asset-Backed Notes. Accordingly, $15.9 million
and
$15.2 million as of September 30, 2008 and December 31, 2007, respectively,
have
been disclosed as restricted cash within Other assets on the Company's balance
sheets.
Interest
rates and terms on the outstanding principal amount of the Asset-Backed Notes
as
of September 30, 2008 are as follows: $42.6 million principal amount bears
interest at a fixed interest rate of 8.45% with a six year term, $18.9 million
principal amount bears interest at a fixed rate of 8.12% with a six year term,
and $60.9 million principal amount bears interest at a fixed rate of 8.99%
with
a six and a half year term. The Asset-Backed Notes have no financial covenants
by which the Company or its subsidiaries need comply. The aggregate principal
amount of the Asset-Backed Notes will be fully paid by February 22,
2013.
Neither
the Company nor any of its subsidiaries (other than IP Holdings) is obligated
to
make any payment with respect to the Asset-Backed Notes, and the assets of
the
Company and its subsidiaries (other than IP Holdings) are not available to
IP
Holdings' creditors. The assets of IP Holdings are not available to the
creditors of the Company or its subsidiaries (other than IP
Holdings).
Sweet
Note
On
April
23, 2002, the Company acquired the remaining 50% interest in Unzipped (see
Note
7) from Sweet Sportswear, LLC (“Sweet”) for a purchase price comprised of
3,000,000 shares of its common stock and $11.0 million in debt, which was
evidenced by the Company’s issuance of the 8% Senior Subordinated Note due in
2012 (“Sweet Note”). Prior to August 5, 2004, Unzipped was managed by Sweet
pursuant to the Management Agreement (as defined in Note 7), which obligated
Sweet to manage the operations of Unzipped in return for, commencing in fiscal
2003, an annual management fee based upon certain specified percentages of
net
income achieved by Unzipped during the three- year term of the agreement. In
addition, Sweet guaranteed that the net income, as defined in the agreement,
of
Unzipped would be no less than $1.7 million for each year during the term,
commencing with fiscal 2003. In the event that the guarantee was not met for
a
particular year, Sweet was obligated under the Management Agreement to pay
the
Company the difference between the actual net income of Unzipped, as defined,
for such year and the guaranteed $1.7 million. That payment, referred to as
the
shortfall payment, could be offset against the amounts due under the Sweet
Note
at the option of either the Company or Sweet. As a result of such offsets,
the
balance of the Sweet Note was reduced by the Company to $3.1 million as of
December 31, 2006 and $3.0 million as of December 31, 2005 and was reflected
in Long- term debt. This note bears interest, which was accrued for in the
Current Nine Months, at the rate of 8% per year and matures in April
2012.
In
November 2007, the Company received a signed judgment related to the Sweet
Sportswear/Unzipped litigation. See Note 9.
The
judgment stated that the Sweet Note (originally $11.0 million when issued by
the
Company upon the acquisition of Unzipped from Sweet in 2002) should total
approximately $12.2 million as of December 31, 2007. The recorded balance of
the
Sweet Note, prior to any adjustments related to the judgment was approximately
$3.2 million. The Company increased the Sweet Note by approximately $6.2 million
and recorded the expense as a special charge. The Company further increased
the
Sweet Note by approximately $2.8 million to record the related interest and
included the charge in interest expense. The Sweet Note as of September 30,
2008
is approximately $12.2 million and included in the current portion of long-term
debt.
In
addition, in November 2007 the Company was awarded a judgment of approximately
$12.2 million for claims made by it against Hubert Guez and Apparel Distribution
Services, Inc. As a result, the Company recorded a receivable of approximately
$12.2 million and recorded the benefit in special charges in Fiscal 2007. This
receivable is included in other assets - non-current and bears interest, which
was accrued for in the Current Nine Months, at the rate of 8% per
year.
Debt
Maturities
A
breakdown of the Company’s estimated current portion of its long-term debt
maturities as of September 30, 2008 are as follows:
(000’s
omitted)
|
|
September
30,
2008
|
|
Convertible
Notes
|
|
$
|
-
|
|
Term
Loan Facility
|
|
|
28,765
|
|
Asset-Backed
Notes
|
|
|
21,760
|
|
Sweet
Note
|
|
|
12,186
|
|
Total
Debt
|
|
$
|
62,711
|
|
The
Company’s debt maturities on a calendar year basis are as follows:
(000’s
omitted)
|
|
Total
|
|
Q4
2008
|
|
2009
|
|
2010
|
|
2011
|
|
2012
|
|
2013
|
|
Convertible
Notes
|
|
$
|
282,684
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
282,684
|
|
|
-
|
|
Term
Loan Facility
|
|
|
255,307
|
|
|
-
|
|
|
28,765
|
|
|
-
|
|
|
-
|
|
|
226,542
|
|
|
-
|
|
Asset-Backed
Notes
|
|
|
122,364
|
|
|
5,267
|
|
|
22,231
|
|
|
24,216
|
|
|
26,380
|
|
|
33,468
|
|
|
10,802
|
|
Sweet
Note
|
|
|
12,186
|
|
|
12,186
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Total
Debt
|
|
$
|
672,541
|
|
$
|
17,453
|
|
$
|
50,996
|
|
|
24,216
|
|
|
26,380
|
|
|
542,694
|
|
|
10,802
|
|
5. Stockholders'
Equity
Stock
Options
The
Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
The
fair
value for these options and warrants was estimated at the date of grant using
a
Black-Scholes option-pricing model with the following weighted-average
assumptions:
Expected
Volatility
|
|
|
30
- 50%
|
|
Expected
Dividend Yield
|
|
|
0%
|
|
Expected
Life (Term)
|
|
|
3
-
7 years
|
|
Risk-Free
Interest Rate
|
|
|
3.00
- 4.75%
|
|
The
options that the Company granted under its plans expire at
various times, either five, seven or ten years from the date of grant, depending
on the particular grant.
Summaries
of the Company's stock options, warrants and performance related options
activity, and related information for the Current Quarter are as
follows:
|
|
Options
|
|
Weighted-
Average
Exercise
Price
|
|
|
|
|
|
|
|
Outstanding
January 1, 2008
|
|
|
5,106,543
|
|
$
|
4.23
|
|
Granted
|
|
|
-
|
|
|
-
|
|
Canceled
|
|
|
-
|
|
|
-
|
|
Exercised
|
|
|
519,405
|
|
|
4.50
|
|
Expired
|
|
|
-
|
|
|
-
|
|
Outstanding
September 30, 2008
|
|
|
4,587,138
|
|
|
4.20
|
|
Exercisable
at September 30, 2008
|
|
|
4,569,138
|
|
|
4.15
|
|
|
|
Warrants
|
|
Weighted-
Average
Exercise
Price
|
|
|
|
|
|
|
|
Outstanding
January 1, 2008
|
|
|
266,900
|
|
$
|
16.76
|
|
Granted
|
|
|
-
|
|
|
|
|
Canceled
|
|
|
-
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
|
Expired
|
|
|
-
|
|
|
|
|
Outstanding
September 30, 2008
|
|
|
266,900
|
|
$
|
16.76
|
|
Exercisable
at September 30, 2008
|
|
|
266,900
|
|
$
|
16.76
|
|
All
warrants issued in connection with acquisitions are recorded at fair market
value using the Black Scholes model and are recorded as part of purchase
accounting. Certain warrants are exercised using the cashless
method.
The
Company values other warrants issued to non-employees at the commitment date
at
the fair market value of the instruments issued, a measure which is more readily
available than the fair market value of services rendered, using the Black
Scholes model. The fair market value of the instruments issued is expensed
over
the vesting period.
Restricted
stock
Compensation
cost for restricted stock is measured as the excess, if any, of the quoted
market price of the Company’s stock at the date the common stock is issued over
the amount the employee must pay to acquire the stock (which is generally zero).
The compensation cost, net of projected forfeitures, is recognized over the
period between the issue date and the date any restrictions lapse, with
compensation cost for grants with a graded vesting schedule recognized on a
straight-line basis over the requisite service period for each separately
vesting portion of the award as if the award was, in substance, multiple awards.
The restrictions do not affect voting and dividend rights.
The
Company has granted restricted stock-based awards to certain
employees. The awards have restriction periods tied to employment and vest
over
a period of up to five years. The cost of the restricted stock-based awards,
which is the fair market value on the date of grant net of estimated
forfeitures, is expensed ratably over the vesting period. During the Current
Nine Months, the Company awarded an aggregate of 1,658,698 restricted
stock-based awards, of which 315,116 are performance based. During the Prior
Year Nine Months, the Company awarded an aggregate of 79,545 restricted
stock-based awards, none of which were performance based. The securities awarded
during the Current Nine Months and the Prior Year Nine Months have a vesting
period of up to five years and a fair market value of approximately $32.9
million and $1.6 million, respectively. During the Current Nine Months, 98,242
restricted stock-based awards had vested.
Unearned
compensation expense related to restricted securities grants for the Current
Nine Months and the Prior Year Nine Months was approximately $6.2 million and
$1.2 million, respectively. An additional amount of $25.7 million is expected
to
be expensed evenly over a period of approximately three months to five
years.
The
following tables summarize information about unvested restricted securities
transactions:
|
|
Securities
|
|
Weighted
Average
Grant
Date
Fair
Value
|
|
Non-vested,
January 1, 2008
|
|
|
144,127
|
|
$
|
19.41
|
|
Granted
|
|
|
1,658,698
|
|
|
19.86
|
|
Vested
|
|
|
(98,242
|
)
|
|
19.09
|
|
Forfeited
|
|
|
-
|
|
|
-
|
|
Non-vested,
September 30, 2008
|
|
|
1,704,583
|
|
$
|
19.86
|
|
Stockholder
Rights Plan
In
January 2000, the Company's Board of Directors adopted a stockholder rights
plan. Under the plan, each holder of common stock received a dividend of
one right for each share of the Company's outstanding common stock, entitling
the holder to purchase one thousandth of a share of Series A Junior
Participating Preferred Stock, par value, $0.01 per share of the Company, at
an
initial exercise price of $6.00. The rights become exercisable and will trade
separately from the common stock ten business days after any person or group
acquires 15% or more of the common stock, or ten business days after any person
or group announces a tender offer for 15% or more of the outstanding common
stock.
Securities
Available for Issuance
As
of
September 30, 2008, the number of securities remaining available for issuance
under the Company’s 2001, 2002 and 2006 equity compensation plans, excluding
securities to be issued upon exercise of outstanding options, warrants, and
rights, is 51,750, 32,274, and 138,465, respectively.
6. Earnings
Per Share
Basic
earnings per share includes no dilution and is computed by dividing net income
available to common stockholders by the weighted average number of common shares
outstanding for the period. Diluted earnings per share reflect, in periods
in
which they have a dilutive effect, the effect of restricted stock-based awards
and common shares issuable upon exercise of stock options and warrants. The
difference between basic and diluted weighted-average common shares results
from
the assumption that all dilutive stock options outstanding were exercised and
all convertible notes have been converted into common stock.
As
of
September 30, 2008, of the total potentially dilutive shares related to
restricted stock-based awards, stock options and warrants, 1.9 million were
anti-dilutive. As of September 30 2007, 3.6_ million warrants to purchase common
stock shares were anti-dilutive, and no restricted stock-based awards or stock
options were anti-dilutive.
As
of
September 30, 2008, of the performance related restricted stock-based
awards issued in connection with the Company’s new employment agreement
with its chairman, chief executive officer and president, 1.2 million of such
awards (which is included in the total 1.9 million anti-dilutive stock-based
awards described above) were anti-dilutive and therefore not included in this
calculation.
Warrants
issued in connection with the Company’s Convertible Notes financing were
anti-dilutive and therefore not included in this calculation. Portions of the
convertible note that would be subject to conversion to common stock were
anti-dilutive as of September 30, 2008 and therefore not included in this
calculation.
A
reconciliation of shares used in calculating basic and diluted earnings per
share follows:
|
|
For the Three
|
|
For the Nine
|
|
|
|
Months Ended
|
|
Months Ended
|
|
(000's omitted)
|
|
September 30,
|
|
September 30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Basic
|
|
|
57,841
|
|
|
56,801
|
|
|
57,662
|
|
|
56,569
|
|
Effect
of exercise of stock options
|
|
|
3,106
|
|
|
4,579
|
|
|
3,426
|
|
|
4,720
|
|
Effect
of contingent common stock issuance
|
|
|
144
|
|
|
-
|
|
|
144
|
|
|
-
|
|
Effect
of assumed vesting of restricted stock
|
|
|
-
|
|
|
-
|
|
|
9
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
61,091
|
|
|
61,380
|
|
|
61,241
|
|
|
61,289
|
|
7.
Unzipped Apparel, LLC (
“Unzipped”
)
On
October 7, 1998, the Company formed Unzipped with its then joint venture partner
Sweet Sportswear, LLC (“Sweet”), the purpose of which was to market and
distribute apparel under the Bongo label. The Company and Sweet each had a
50%
interest in Unzipped. Pursuant to the terms of the joint venture, the Company
licensed the Bongo trademark to Unzipped for use in the design, manufacture
and
sale of certain designated apparel products.
On
April
23, 2002, the Company acquired the remaining 50% interest in Unzipped from
Sweet
for a purchase price of three million shares of the Company's common stock
and
$11 million in debt evidenced by the Sweet Note. See Note 4. In connection
with
the acquisition of Unzipped, the Company filed a registration statement with
the
Securities and Exchange Commission ("SEC") for the three million shares of
the
Company's common stock issued to Sweet, which was declared effective by the
SEC
on July 29, 2003.
Prior
to
August 5, 2004, Unzipped was managed by Sweet pursuant to a management agreement
(the “Management Agreement”). Unzipped also had a supply agreement with Azteca
Productions International, Inc. ("Azteca") and a distribution agreement with
Apparel Distribution Services, LLC ("ADS"). All of these entities are owned
or
controlled by Hubert Guez.
On
August
5, 2004, Unzipped terminated the Management Agreement with Sweet, the supply
agreement with Azteca and the distribution agreement with ADS and commenced
a
lawsuit against Sweet, Azteca, ADS and Hubert Guez. See Note 9.
There
were no transactions with these related parties during the Current Nine Months
and the Prior Year Nine Months.
In
November 2007, a judgment was entered in the Unzipped litigation, pursuant
to
which the $3.1 million in accounts payable to ADS/Azteca (previously shown
as
“accounts payable - subject to litigation”) was eliminated and recorded in the
income statement as a benefit to the “expenses related to specific
litigation”.
As
a
result of the judgment, in Fiscal 2007 the balance of the $11.0 million
principal amount Sweet Note, originally issued by the Company upon the
acquisition of Unzipped from Sweet in 2002, including interest, was increased
from approximately $3.2 million to approximately $12.2 million as of December
31, 2007. Of this increase, approximately $6.2 million was attributed to the
principal of the Sweet Note and the expense was recorded as an expense related
to specific litigation. The remaining $2.8 million of the increase was
attributed to related interest on the Sweet Note and recorded as interest
expense. As of September 30, 2008, the full $12.2 million current balance of
the
Sweet Note and $0.7 million of accrued interest are included in the current
portion of long term debt and accounts payable and accrued expenses,
respectively.
In
addition, in November 2007 the Company was awarded a judgment of approximately
$12.2 million for claims made by it against Hubert Guez and ADS. As a result,
the Company recorded a receivable of approximately $12.2 million and recorded
the benefit in special charges for Fiscal 2007. As of September 30, 2008, this
receivable and the associated accrued interest of $0.7 million for the Current
Nine Months are included in other assets - non-current.
8. Expenses
Related to Specific Litigation
Expenses
related to specific litigation consist of legal expenses and costs related
to
the Unzipped litigation. For the Current Nine Months and Prior Year Nine Months,
the Company recorded expenses related to specific litigation of $0.7 million
and
$1.1 million, respectively. See Note 7 for information relating to
Unzipped.
9. Commitments
and Contingencies
Sweet
Sportswear/Unzipped litigation
On
August 5, 2004, the Company, along with its subsidiaries, Unzipped, Michael
Caruso & Co., referred to as Caruso, and IP Holdings, collectively referred
to as the plaintiffs, commenced a lawsuit in the Superior Court of California,
Los Angeles County, against Unzipped's former manager, former supplier and
former distributor, Sweet, Azteca and ADS, respectively, and a principal of
these entities and former member of the Company's board of directors, Hubert
Guez, collectively referred to as the Guez defendants. The Company pursued
numerous causes of action against the Guez defendants, including breach of
contract, breach of fiduciary duty, trademark infringement and others and sought
damages in excess of $20 million. On March 10, 2005, Sweet, Azteca and ADS,
collectively referred to as cross-complainants, filed a cross-complaint against
the Company claiming damages resulting from a variety of alleged contractual
breaches, among other things.
In
January 2007, a jury trial was commenced, and on April 10, 2007, the jury
returned a verdict of approximately $45 million in favor of the Company and
its
subsidiaries, finding in favor of the Company and its subsidiaries on every
claim that they pursued, and against the Guez defendants on every counterclaim
asserted. Additionally, the jury found that all of the Guez defendants acted
with malice, fraud or oppression with regard to each of the tort claims asserted
by the Company and its subsidiaries, and on April 16, 2007, awarded plaintiffs
$5 million in punitive damages against Mr. Guez personally. The Guez defendants
filed post-trial motions seeking, among other things, a new trial. Through
a set
of preliminary rulings dated September 27, 2007, the Court granted in part,
and
denied in part, the Guez defendants’ post trial motions, and denied plaintiffs’
request that the Court enhance the damages awarded against the Guez defendants
arising from their infringement of plaintiffs’ trademarks. Through these
rulings, the Court, among other things, reduced the amount of punitive damages
assessed against Mr. Guez to $4 million, and reduced the total damages awarded
against the Guez defendants by approximately 50%.
The
Court
adopted these preliminary rulings as final on November 16, 2007. On the same
day, the Court entered judgment against Mr. Guez in the amount of $10,964,730
and ADS in the amount of $1,272,420, and against each of the Guez defendants
with regard to each and every claim that they pursued in the litigation
including, without limitation, ADS’s and Azteca’s unsuccessful efforts to
recover against Unzipped any account balances claimed to be owed, totaling
approximately $3.5 million including interest (collectively, the “Judgments”).
In entering the Judgments, the Court upheld the jury’s verdict in favor of the
Company relating to its write-down of the senior subordinated note due 2012,
issued by the Company to Sweet in connection with the Company’s acquisition of
Unzipped for Unzipped’s 2004 fiscal year. The monetary portion of the Judgments
accrues interest at a rate of 10% per annum from the date of the Judgments’
entry. Also on November 16, 2007, the Court issued a Memorandum Order wherein
it
upheld an aggregate of approximately $7,000,000 of the jury’s verdicts against
Sweet and Azteca, but declined to enter judgment against these entities since
it
had ordered a new trial with regard to certain other damage awards entered
against these entities by the jury.
On
March
7, 2008, the Court commenced a hearing with regard to plaintiffs’ petition
seeking in excess of $15.0 million attorneys’ fees and costs, which hearing was
concluded on April 18, 2008. By order dated May 6, 2008, the Court awarded
plaintiffs certain statutory costs against the Guez defendants. The Court also
determined that plaintiffs were entitled to pursue recovery of their
non-statutory costs, comprised primarily of expert witness fees, incurred in
connection with this action. The hearing with regard to plaintiffs’ recovery of
non-statutory costs was conducted on August 7 and 8, 2008.
By
final order dated October 31, 2008, the
Plaintiffs
’
petition for attorneys’ fees was granted with respect to $7,663,456 of fees. The
Court did not award any non-statuatory costs.
On
November 21, 2007, the Guez defendants filed a notice of appeal. They also
filed
a $49,090,491 undertaking with the Court, consisting primarily of a $43,380,491
personal surety given jointly by Gerard Guez and Jacqueline Rose Guez, bonding
the monetary portions of the Judgments. By Order dated December 17, 2008 the
Court determined that the undertaking was adequate absent changed circumstances.
This determination serves to prevent the Company and its subsidiaries from
pursuing collection of the monetary portions of the Judgments during the
pendency of the appeal. The Company and its subsidiaries filed a notice of
appeal on November 26, 2007, appealing, among other things, those parts of
the
jury’s verdicts vacated by the Court in connection with the Guez defendants’
post-trial motions. The Company and its subsidiaries intend to vigorously pursue
their appeal, and vigorously defend against the Guez parties’
appeal.
Bader/Unzipped
litigation
This
lawsuit was settled and discontinued with prejudice on March 25, 2008. The
lawsuit was commenced on November 5, 2004, when Unzipped filed a complaint
in
the Supreme Court of New York, New York County, against Unzipped's former
president of sales, Gary Bader, alleging that Mr. Bader breached certain
fiduciary duties owed to Unzipped as its president of sales, unfairly competed
with Unzipped and tortiously interfered with Unzipped's contractual
relationships with its employees. On October 5, 2005, Unzipped amended its
complaint to assert identical claims against Bader's company, Sportswear
Mercenaries, Ltd. On October 14, 2005, Bader and Sportswear Mercenaries filed
an
answer containing counterclaims to Unzipped's amended complaint, and a
third-party complaint, which was dismissed in its entirety on June 9, 2006,
except with respect to a single claim that it owed Bader and Sportswear
Mercenaries $72,000.
Bongo
Apparel, Inc. litigation
On
or
about June 12, 2006, Bongo Apparel, Inc. (“BAI”) filed suit in the Supreme Court
of the State of New York, County of New York, against the Company and IP
Holdings alleging certain breaches of contract and other claims and seeks,
among
other things, damages of at least $25 million.
Additionally,
on or about October 6, 2006, the Company and IP Holdings filed suit in the
United States District Court for the Southern District of New York against
BAI
and its guarantor, TKO Apparel, Inc. (“TKO”). In that complaint, the
Company and IP Holdings asserted various contract, tort and trademark claims
that arose as a result of the failures of BAI with regard to the Bongo men's
jeanswear business and its wrongful conduct with regard to the Bongo women's
jeanswear business. The Company and IP Holdings sought monetary damages in
an
amount in excess of $10 million and a permanent injunction with respect to
the
use of the Bongo trademark.
By
Agreement and Mutual General Release dated September 15, 2008, the Company,
IP
Holdings, BAI, and TKO entered into an Agreement and Mutual General Release
settling their disputes identified or that could have been identified in the
actions set forth immediately below (the “Settlement Agreement”). Among other
things, the Settlement Agreement requires TKO to pay to the Company a total
of
$1,000,000 over an eight year period, and obligated the parties to dismiss
all
of the actions identified below with prejudice, which has occurred. Also, by
Personal Guaranty dated September 15, 2008, J. Kenneth Tate and James D. Tate
personally guaranteed TKO’s payment obligations arising pursuant to the
Settlement Agreement.
Normal
Course litigation
From
time
to time, the Company is also made a party to litigation incurred in the normal
course of business. While any litigation has an element of uncertainty, the
Company believes that the final outcome of any of these routine matters will
not
have a material effect on the Company’s financial position or future
liquidity.
10. Related
Party Transactions
On
May 1,
2003, the Company granted Kenneth Cole Productions, Inc. the exclusive worldwide
license to design, manufacture, sell, distribute and market footwear under
its
Bongo brand. The chief executive officer and chairman of Kenneth Cole
Productions is Kenneth Cole, who is the brother of Neil Cole, the Company's
chairman, chief executive officer and president. During the Current Nine Months
and Prior Year Nine Months, the Company earned $0.9 million and $0.8 million,
respectively, in royalties from Kenneth Cole Productions.
The
Candie's Foundation, a charitable foundation founded by Neil Cole for the
purpose of raising national awareness about the consequences of teenage
pregnancy, owed the Company $0.5 million and $0.4 million at September 30,
2008
and December 31, 2007, respectively, which is included in prepaid advertising
and other on the unaudited condensed consolidated balance sheet. The Candie's
Foundation intends to pay-off the entire borrowing from the Company, although
additional advances will be made as and when necessary. Mr. Cole’s wife,
Elizabeth Cole, performs services for the foundation but receives no
compensation.
The
Company recorded expenses of approximately $303,000 for the Current Nine Months
for the hire and use of aircraft owned by a company in which the Company’s
chairman, chief executive officer and president is the sole owner. There
were no such expenses in the Prior Year Nine Months. Management believes that
all transactions were made on terms and conditions similar to those available
in
the marketplace from unrelated parties.
11. Joint
Venture
On
September 5, 2008, the Company and Novel Fashions Limited (“Novel”) formed a
joint venture (“Iconix China”) to develop, exploit and market the Company's
brands in the People’s Republic of China, Hong Kong, Macau and Taiwan (the
“Territory”). Pursuant to the terms of this transaction, the Company has
committed to contribute to Iconix China $5 million and substantially all rights
to its brands in the Territory, and Novel has committed to contribute $20
million, over the two-year period following the consummation of the
transaction.
FASB
Interpretations No. 46(R)
Consolidation
of Variable Interest Entities
(“FIN
46(R)”) addresses consolidation by business enterprises of variable interest
entities. Based on the corporate structure, voting rights and contributions
of
the Company and Novel, Iconix China is considered a variable interest entity
that is not subject to consolidation, as the Company is not the primary
beneficiary of Iconix China.
Upon
consummation of this joint venture transaction, the Company recorded
approximately a $2.6 million gain from its contribution of the substantially
all
rights to its brands in the Territory, which is included in Licensing and other
revenue on the unaudited condensed consolidated income statements. During the
Current Quarter, Iconix China recorded a net loss of approximately $856,000.
The
Company has recorded its 50% share of the net loss as an Equity loss on joint
venture of $428,000, included in the Other expenses section of the unaudited
condensed consolidated income statements. As of September 30, 2008 the Company
has contributed $2.0 million and Novel has contributed $8.0
million.
12. Segment
Data
The
Company has one reportable segment, licensing revenue generated from its brands.
The geographic regions consist of the United States and Other (which principally
represents Canada, Japan and Europe). Long lived assets are all located in
the
United States. Revenues attributed to each region are based on the location
in
which licensees are located.
The
revenues by type of license and information by geographic region are as
follows:
|
|
For the three months ended
|
|
For the nine months ended
|
|
(000's omitted)
|
|
September 30,
|
|
September 30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Revenues
by product line:
|
|
|
|
|
|
|
|
|
|
Direct-to-retail license
|
|
$
|
11,455
|
|
$
|
10,740
|
|
$
|
41,229
|
|
$
|
37,256
|
|
Wholesale license
|
|
|
40,247
|
|
|
31,139
|
|
|
116,658
|
|
|
73,528
|
|
Other
|
|
|
3,433
|
|
|
802
|
|
|
4,615
|
|
|
1,809
|
|
|
|
$
|
55,135
|
|
$
|
42,681
|
|
$
|
162,502
|
|
$
|
112,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
by geographic region:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
48,930
|
|
$
|
40,201
|
|
$
|
149,722
|
|
$
|
105,787
|
|
Other
|
|
|
6,205
|
|
|
2,480
|
|
|
12,780
|
|
|
6,806
|
|
|
|
$
|
55,135
|
|
$
|
42,681
|
|
$
|
162,502
|
|
$
|
112,593
|
|
13. Subsequent
Events
Acquisition
of Waverly
On
October 3, 2008, the Company completed its acquisition, from NexCen Brands,
Inc.
and its subsidiaries (the “Sellers”), of certain of the assets and rights
related to the Sellers’ business of marketing, licensing and managing the
Sellers’ Waverly group of trademarks, intellectual property and related names
worldwide (“Waverly”) pursuant to an Asset Purchase Agreement, dated as of
September 29, 2008 (the “Purchase Agreement”). The aggregate purchase price paid
was $26,000,000.
In
accordance with the terms of the Purchase Agreement, at the closing, the Company
paid the Sellers $26,000,000 in cash and assumed certain liabilities of the
Sellers. In accordance with the terms of the Purchase Agreement, the Sellers
delivered all of their right, title and interest in Waverly to Studio IP
Holdings.
Stock
Repurchase Program
On
October 30, 2008, the Company's Board of Directors authorized the repurchase
of
up to $75 million of the Company's common stock over a period of approximately
three years. This authorization replaces any prior plan or authorization. The
current plan does not obligate the Company to repurchase any specific number
of
shares and may be suspended at any time at management's
discretion.
Item
2.
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
Safe
Harbor Statement under the Private Securities Litigation Reform Act of
1995
.
The
statements that are not historical facts contained in this report are forward
looking statements that involve a number of known and unknown risks,
uncertainties and other factors, all of which are difficult or impossible to
predict and many of which are beyond the control of the Company, which may
cause
the actual results, performance or achievements of the Company to be materially
different from any future results, performance or achievements expressed or
implied by such forward looking statements. These risks are detailed in the
Company’s Form 10-K for the fiscal year ended December 31, 2007 and other SEC
filings. The words “believe”, “anticipate,” “expect”, “confident”, “project”,
provide “guidance” and similar expressions identify forward-looking statements.
Readers are cautioned not to place undue reliance on these forward looking
statements, which speak only as of the date the statement was made.
Executive
Summary.
We are a
brand management company engaged in licensing, marketing and providing trend
direction for a diversified and growing portfolio of consumer brands. Our brands
are sold across every major segment of retail distribution, from luxury to
mass.
As of September 30, 2008, we owned 16 iconic consumer brands: Candie’s, Bongo,
Badgley Mischka, Joe Boxer, Rampage, Mudd, London Fog, Mossimo, Ocean
Pacific/OP, Danskin, Rocawear, Cannon, Royal Velvet, Fieldcrest, Charisma,
and
Starter. We license our brands worldwide through approximately 210
direct-to-retail and traditional wholesale licenses for use in connection with
a
broad variety of product categories, including footwear, fashion accessories,
sportswear, home products and décor, and beauty and fragrance. Our business
model allows it to focus on its core competencies of marketing and managing
brands without many of the risks and investment requirements associated with
a
more traditional operating company. Its licensing agreements with leading retail
and wholesale partners throughout the world provide us with a predictable stream
of guaranteed minimum royalties.
Our
growth strategy is focused on increasing licensing revenue from its existing
portfolio of brands through the addition of new product categories, expanding
its brands’ retail penetration and optimizing the sales of its licensees. We
will also seek to continue the international expansion of its brands by
partnering with leading licensees throughout the world. Finally, we believe
we
will continue to acquire iconic consumer brands that can be merchandised over
a
wide range of categories to further diversify our brand portfolio. On October
3,
2008 we acquired Waverly, a premier home fashion and lifestyle brand and one
of
the most recognized names in home furnishings.
Results
of Operations
For
the three months ended September 30, 2008
Revenue.
Revenue
for the Current Quarter increased to $55.1 million from $42.7 million during
the
Prior Year Quarter, an increase of $12.4 million. During the Current Quarter,
we
recorded a non-cash gain of approximately $2.6 million related to the sale
of a
trademark to our 50% owned joint venture in China (see Note 11 in the Notes
to
unaudited condensed consolidated financial statements). The principal driver
of
the remaining growth of $9.8 million was a full quarter of revenue generated
from the acquisitions of the Official-Pillowtex brands (i.e. Cannon, Royal
Velvet, Fieldcrest, Charisma) and Starter made during the fourth quarter of
Fiscal 2007, which had no comparable revenue in the Prior Year
Quarter.
Operating
Expenses.
Selling,
general and administrative (“SG&A”) expenses totaled $18.6 million in the
Current Quarter compared to $13.4 million in the Prior Year Quarter. The
increase of $5.2 million was primarily related to: (i) an increase of
approximately $2.3 million in payroll costs, primarily due to an increase of
$1.4 million in non-cash stock compensation expense, from $0.5 million in the
Prior Year Quarter to $1.9 million in the Current Quarter, of which $1.3 million
of the increase related to the new employment contract with our chairman, chief
executive officer and president, with the balance of the aggregate increase
in
payroll costs attributable to the increase in employee headcount mainly related
to our 2007 acquisitions; (ii) an increase of approximately $0.9 million in
advertising mainly driven by increased advertising related to brands acquired
in
the fourth quarter of Fiscal 2007, with no comparable advertising expense in
the
Prior Year Quarter; and (iii) amortization of intangible assets (mainly
contracts and non-competes) as a direct result of the Official-Pillowtex,
Starter, and Artful Dodger brands acquisitions which accounted for $0.6 million
in the Current Quarter and for which there was no comparable expense in the
Prior Year Quarter. The remaining increase in SG&A of $1.4 million is
primarily attributed to an increase in other general and administrative expenses
associated with the Danskin, Rocawear, Official-Pillowtex, and Starter
brand acquisitions.
For
the
Current Quarter and Prior Year Quarter our expenses related to specific
litigation (formerly called special charges), included an expense for
professional fees of $0.3 million and a reimbursement of certain fees totaling
$39,000, respectively, relating to litigation involving Unzipped. See Notes
7
and 8 of Notes to Unaudited Condensed Consolidated Financial
Statements.
Operating
Income.
Operating income for the Current Quarter increased to $36.3 million,
representing approximately 66% of total revenue, compared to $29.3 million
or
approximately 69% of total revenue in the Prior Year Quarter. The decrease
in
our operating margin percentage is primarily the result of the increase in
operating expenses for the reasons detailed above.
Other
Expenses - Net
-
Interest expense increased by $2.9 million in the Current Quarter to $7.6
million, compared to interest expense of $4.7 million in the Prior Year Quarter.
This increase was due to several factors: (i) an increase in our debt financing
arrangements in connection with the acquisition of Starter; (ii) interest
expense related to the Sweet Note; and, (iii) a decrease in interest income
related to our higher cash balance during the Prior Year Quarter related to
the
proceeds from the Convertible Notes. This increase was offset by a decrease
in
the interest rate for our variable rate debt (i.e. our Term Loan Facility)
and
interest income related to our judgment against Herbert Guez and ADS. See Note
4
of Notes to Unaudited Condensed Consolidated Financial Statements. Deferred
financing costs increased by $0.5 million in the Current Quarter to $0.8 million
from $0.3 million in the Prior Year Quarter due to additional financing obtained
in Fiscal 2007.
Provision
for Income Taxes.
The
effective income tax rate for the Current Quarter is approximately 35.3%
resulting in the $10.0 million income tax expense, as compared to an effective
income tax rate of 30.9% in the Prior Year Quarter which resulted in the $7.6
million income tax expense.
Net
Income
.
The
Company’s net income was $18.3 million in the Current Quarter, compared to net
income of $17.0 million in the Prior Year Quarter, as a result of the factors
discussed above.
For
the nine months ended September 30, 2008
Revenue.
Revenue
for the Current Nine Months increased to $162.5 million from $112.6 million
during the Prior Year Nine Months. During the Current Nine Months, we recorded
a
non-cash gain of approximately $2.6 million related to the sale of a trademark
to our joint venture in China. The principal driver of this growth of $47.3
million was three full quarters of revenue generated from the acquisitions
of
Rocawear and Danskin, as compared to only two quarters of revenue from these
brands in the Prior Year Nine Months, and three full quarters of revenue
generated from the acquisitions of the Official-Pillowtex brands, Starter and
Artful Dodger made during the fourth quarter of 2007, which had no comparable
revenue in the Prior Year Nine Months.
Operating
Expenses.
SG&A
expenses totaled $55.6 million in the Current Nine Months compared to $30.1
million in the Prior Year Nine Months. The increase of $25.5 million was
primarily related to: (i) an increase of approximately $9.4 million in payroll
costs, primarily due to an increase of $4.9 million in non-cash stock
compensation expense, from $1.3 million in the Prior Year Nine Months to $6.2
million in the Current Nine Months, of which $4.0 million of the increase
related to the new employment contract with our chairman, chief executive
officer and president, with the balance of the aggregate increase in payroll
costs attributable to the increase in employee headcount mainly related to
our
2007 acquisitions; (ii) an increase of approximately $7.6 million in advertising
mainly driven by three full quarters of advertising related to brands acquired
in Fiscal 2007; (iii) amortization of intangible assets (mainly contracts and
non-competes) as a direct result of the Danskin, Rocawear, Official-Pillowtex,
Starter, and Artful Dodger brands acquisitions, which accounted for $3.5 million
in the Current Nine Months and $1.2 million in the Prior Year Nine Months;
and
(iv) an increase of $3.5 million in professional fees primarily related to
increased maintenance costs on new trademarks. The remaining increase in
SG&A of $2.7 million relates to an increase in other general and
administrative expenses associated with the Danskin, Rocawear,
Official-Pillowtex, and Starter brand acquisitions.
For
the
Current Nine Months and Prior Year Nine Months, our expenses related to specific
litigation, formerly known as special charges, included an expense for
professional fees of $0.7 million and $1.1 million, respectively, relating
to
litigation involving Unzipped. See Notes 7 and 8 of Notes to Unaudited Condensed
Consolidated Financial Statements.
Operating
Income.
Operating income for the Current Nine Months increased to $106.2 million, or
approximately 65% of total revenue, compared to $81.4 million or approximately
72% of total revenue in the Prior Year Nine Months. The decrease in our
operating margin percentage is primarily the result of the increase in operating
expenses for the reasons detailed above.
Other
Expenses - Net
-
Interest expense increased by $9.5 million in the Current Nine Months to $23.8
million, compared to interest expense of $14.3 million in the Prior Year Nine
Months. This increase was due to several factors: (i) an increase in our debt
financing arrangements in connection with the acquisitions of Rocawear,
Official-Pillowtex and Starter; (ii) interest expense related to the Sweet
Note;
and, (iii) a decrease in interest income related to our higher cash balance
during the Prior Year Nine Months related to the proceeds from the Convertible
Notes. This increase was offset by a decrease in interest rates for our variable
rate debt (i.e. our Term Loan Facility) and interest income related to our
judgment against Herbert Guez and ADS. See Note 4 of Notes to Unaudited
Condensed Consolidated Financial Statements. Specifically, for the Current
Nine
Months, there was a total interest expense relating to the Term Loan Facility,
Convertible Notes and the Sweet Note of approximately $11.5 million, $4.0
million and $0.7 million respectively with no comparable interest expense in
the
Prior Year Nine Months. Deferred financing costs increased by $1.7 million
in
the Current Nine Months to $2.5 million from $0.8 million in the Prior Year
Nine
Months due to additional financing obtained in Fiscal 2007.
Provision
for Income Taxes.
The
effective income tax rate for the Current Nine Months is approximately 35.4%
resulting in the $29.1 million income tax expense, as compared to an effective
income tax rate of 33.7% in the Prior Year Nine Months which resulted in the
$22.6 million income tax expense.
Net
Income
.
The
Company’s net income was $53.0 million in the Current Nine Months, compared to
net income of $44.5 million in the Prior Year Nine Months, as a result of the
factors discussed above.
Liquidity
and Capital Resources
Liquidity
Our
principal capital requirements have been to fund acquisitions, working capital
needs, and to a lesser extent capital expenditures. We have historically relied
on internally generated funds to finance our operations and our primary source
of capital needs for acquisition has been the issuance of debt and equity
securities. At September 30, 2008 and December 31, 2007, our cash totaled $83.9
million and $53.3 million, respectively, including short-term restricted cash
of
$1.3 million and $5.2 million, respectively.
Subsequent
to the Current Quarter, on October 3, 2008, we completed our
acquisition of Waverly for $26.0 million in cash. We funded the acquisition
from cash on hand at September 30, 2008. See Note 13 for further details
on this
acquisition.
The
Term
Loan Facility requires us to repay the principal amount of the term loan
outstanding in an amount equal to 50% of the excess cash flow of the
subsidiaries subject to the Term Loan Facility for the most recently completed
fiscal year. If the Term Loan Facility had required us to repay the principal
amount of the term loan outstanding based on the excess cash flow of such
subsidiaries for the nine months ended September 30, 2008 rather than based
upon
the fiscal year end results, we would have been required to pay approximately
$28.8 million, representing 50% of the excess cash flow of such subsidiaries
for
that nine-month period. However, in accordance with the terms of the Term Loan
Facility as noted above, the next calculation for determining the actual excess
cash flow payment we will be required to make under the Term Loan Facility
will
be based on the results of the subsidiaries subject to the Term Loan Facility
for the 12 months ending December 31, 2008, and therefore the $28.8 million
shown in Current portion of long-term debt will more than likely
change
We
believe that cash from future operations as well as currently available cash
will be sufficient to satisfy our anticipated working capital requirements
for
the foreseeable future. We intend to continue financing its brand acquisitions
through a combination of cash from operations, bank financing and the issuance
of additional equity and/or debt securities. See Note 4 of Notes to Unaudited
Condensed Consolidated Financial Statements for a description of certain prior
financings consummated by us..
As
of
September 30, 2008, our marketable securities consist of investment grade
auction rate securities. During Fiscal 2007, we invested $196.4 million in
auction rate securities and the majority of these securities ($183.4 million)
had successful auctions. However, beginning in the third quarter of Fiscal
2007,
$13.0 million of the auction rate securities failed auctions due to sell orders
exceeding buy orders. These funds will not be available to us until a successful
auction occurs or a buyer is found outside the auction process. As a result,
$13.0 million of auction rate securities were written down to $10.7 million,
using Level 3 inputs with present value techniques as described by the fair
value hierarchy and the income approach outlined in SFAS 157, as an unrealized
pre-tax loss of $2.3 million to reflect a temporary decrease in fair value.
As
the write-down of $2.3 million has been identified as a temporary decrease
in
fair value, the write-down has not impacted our earnings and is reflected as
an
other comprehensive loss in the consolidated statement of stockholders’ equity.
We believe this decrease in fair value is temporary due to general macroeconomic
market conditions, as interest is being paid in full as scheduled, we have
the
ability to hold the securities until an anticipated full redemption, and the
underlying securities have maintained their investment grade rating. We believe
our cash flow from future operations and its cash will be sufficient to satisfy
its anticipated working capital requirements for the foreseeable future,
regardless of the timeliness of the auction process.
Changes
in Working Capital
At
September 30, 2008 and December 31, 2007 the working capital ratio (current
assets to current liabilities) was 1.79 to 1 and 1.25 to 1, respectively. This
increase was driven by an increase in cash as well as the factors set forth
below:
Operating
Activities
Net
cash
provided by operating activities totaled $63.1 million in the Current Nine
Months, as compared to $58.4 million of net cash provided by operating
activities in the Prior Year Nine Months. Cash provided by operating activities
in the Current Nine Months increased $4.7 million primarily due to net income
of
$53.0 million, stock-based compensation expense of $6.2 million of which $4.0
million can be directly attributed to our new contract with the chief executive
officer, amortization of intangibles of $5.5 million of which $2.3 million
relates to one additional quarter of amortization for those brands acquired
at
the end of the first quarter of 2007 (ie. Danskin and Rocawear) as well as
three
quarters of amortization for the Official-Pillowtex and Starter brands, and
a
net increase of $20.2 million in deferred income taxes primarily related to
the
provision for income taxes for the Current Nine Months, offset primarily by
increases of $14.3 million in accounts receivable and $10.9 million in prepaid
advertising and other, and a decrease of $3.5 million in deferred revenue.
We
continue to rely upon cash generated from licensing operations to finance our
operations.
Investing
Activities
Net
cash
used in investing activities in the Current Nine Months totaled $11.5 million,
as compared to $313.7 million used in the Prior Year Nine Months. In the Current
Nine Months, we paid cash earn-outs of $3.3 million related to our acquisition
of Official-Pillowtex and $1.1 million related to our acquisition of Rocawear,
which were recorded as increases to goodwill; in addition, and we made an
initial cash contribution of $2.0 million to our 50% owned joint venture in
China. This aggregate of cash used in investing activities was offset by
collection of $1.0 million related to an outstanding promissory note. In the
Prior Year Nine Months, we paid $70.8 million in cash for certain assets related
to the Danskin brand, $204.2 million in cash for certain assets related to
the
Rocawear brand, and $196.4 million for the purchase of certain marketable
securities, offset by the sale of $183.4 million of those marketable securities.
Capital expenditures for the Current Nine Months were $4.2 million, compared
to
less than $0.1 million in capital expenditures in the Prior Year Nine Months,
primarily relating to the purchase of fixtures for certain
brands.
Financing
Activities
Net
cash
used in financing activities was $17.0 million in the Current Nine Months,
compared with $434.1 million of net cash provided by financing activities in
the
Prior Year Nine Months. Of the $17.0 million in net cash used in financing
activities, $30.7 million was used for principal payments related to the
Asset-Backed Notes and the Term Loan Facility. This was offset by $9.0 million
from the excess tax benefit from share-based payment arrangements, $2.3 million
from net proceeds in connection with the exercise of stock options and warrants,
and a net decrease of $3.2 million in total restricted cash.
Other
Matters
Summary
of Critical Accounting Policies.
Several
of the Company's accounting policies involve management judgments and estimates
that could be significant. The policies with the greatest potential effect
on
the Company's consolidated results of operations and financial position include
the estimate of reserves to provide for collectability of accounts receivable.
The Company estimates the collectability considering historical, current and
anticipated trends related to deductions taken by customers and markdowns
provided to retail customers to effectively flow goods through the retail
channels, and the possibility of non-collection due to the financial position
of
its licensees' customers. Due to the licensing model, the Company has eliminated
its inventory risk and reduced its operating risks, and can now reasonably
forecast revenues and plan expenditures based upon guaranteed royalty
minimums.
The
preparation of the consolidated financial statements in conformity with
accounting principles generally accepted in the U.S. requires management to
make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. The Company reviews all significant estimates
affecting the financial statements on a recurring basis and records the effect
of any adjustments when necessary.
In
connection with its licensing model, the Company has entered into various
trademark license agreements that provide revenues based on minimum royalties
and additional revenues based on a percentage of defined sales. Minimum royalty
revenue is recognized on a straight-line basis over each period, as defined,
in
each license agreement. Royalties exceeding the defined minimum amounts are
recognized as income during the period corresponding to the licensee's
sales.
In
June
2001, the Financial Accounting Standards Board, or FASB, issued SFAS No. 142,
"Goodwill and Other Intangible Assets," (“SFAS No. 142”) which changed the
accounting for goodwill from an amortization method to an impairment-only
approach. Upon the Company's adoption of SFAS No. 142 on February 1, 2002,
the
Company ceased amortizing goodwill. As prescribed under SFAS No. 142, the
Company had goodwill tested for impairment during the years ended December
31,
2007, 2006 and 2005, and no impairments were necessary.
Impairment
losses are recognized for long-lived assets, including certain intangibles,
used
in operations when indicators of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are not sufficient to
recover the assets carrying amount. Impairment losses are measured by comparing
the fair value of the assets to their carrying amount.
Effective
January 1, 2006, we adopted SFAS No. 123(R), “Accounting for
share-based payment,” which requires companies to measure and recognize
compensation expense for all stock-based payments at fair value. Under SFAS
No.
123(R), using the modified prospective method, compensation expense is
recognized for all share-based payments granted prior to, but not yet vested
as
of, January 1, 2006. Prior to the adoption of SFAS No.123 (R), we accounted
for our stock-based compensation plans under the recognition and measurement
principles of accounting principles board, or APB, Opinion No. 25,
“Accounting for stock issued to employees,” and related interpretations.
Accordingly, the compensation cost for stock options had been measured as the
excess, if any, of the quoted market price of our common stock at the date
of
the grant over the amount the employee must pay to acquire the stock. In
accordance with the modified prospective transition method, our consolidated
financial statements have not been restated to reflect the impact of SFAS
No.123(R). The impact on our financial condition and results of operations
from
the adoption of SFAS No. 123(R) will depend on the number and terms of
stock options granted in future years under the modified prospective method,
the
amount of which we cannot currently estimate.
The
Company accounts for income taxes in accordance with SFAS No. 109 “Accounting
for Income Taxes” (“SFAS No. 109”). Under SFAS No. 109, deferred tax assets and
liabilities are determined based on differences between the financial reporting
and tax basis of assets and liabilities and are measured using the enacted
tax
rates and laws that will be in effect when the differences are expected to
reverse. A valuation allowance is established when necessary to reduce deferred
tax assets to the amount expected to be realized. In determining the need for
a
valuation allowance, management reviews both positive and negative evidence
pursuant to the requirements of SFAS No. 109, including current and historical
results of operations, the annual limitation on utilization of net operating
loss carry forwards pursuant to Internal Revenue Code section 382, future income
projections and the overall prospects of the Company's business. Based upon
management's assessment of all available evidence, including the Company's
completed transition into a licensing business, estimates of future
profitability based on projected royalty revenues from its licensees, and the
overall prospects of the Company's business, management concluded in Fiscal
2007
that it is more likely than not that the net deferred income tax asset recorded
as of December 31, 2006 will be realized.
The
Company adopted FIN 48 beginning January 1, 2007. The implementation of FIN
48
did not have a significant impact on the Company’s financial position or results
of operations. The total unrecognized tax benefit was $1.1 million at the date
of adoption. At September 30, 2008, the total unrecognized tax benefit was
$1.1
million. However, the liability is not recognized for accounting purposes
because the related deferred tax asset has been fully reserved in prior years.
The Company is continuing its practice of recognizing interest and penalties
related to income tax matters in income tax expense. There was no accrual for
interest and penalties related to uncertain tax positions for the Current Nine
Months. The Company files federal and state tax returns and is generally no
longer subject to tax examinations for fiscal years prior to 2004.
Marketable
securities, which are accounted for as available-for-sale, are stated at fair
value in accordance with SFAS No. 115, “Accounting for Certain Investments in
Debt and Equity Securities,” and consist of auction rate securities. Temporary
changes in fair market value are recorded as other comprehensive income or
loss,
whereas other than temporary markdowns will be realized through the Company’s
statement of operations. On January 1, 2008, the Company adopted SFAS No. 157,
which establishes a framework for measuring fair value and requires expanded
disclosures about fair value measurement. While SFAS No.157 does not require
any
new fair value measurements in its application to other accounting
pronouncements, it does emphasize that a fair value measurement should be
determined based on the assumptions that market participants would use in
pricing the asset or liability. The Company’s assessment of the significance of
a particular input to the fair value measurement requires judgment and may
affect the valuation.
In
December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
Combinations” (“SFAS 141R”), which requires an acquirer to do the following:
expense acquisition related costs as incurred; record contingent consideration
at fair value at the acquisition date with subsequent changes in fair value
to
be recognized in the income statement; and, any adjustments to the purchase
price allocation are to be recognized as a period cost in the income statement.
SFAS 141R applies prospectively to business combinations for which the
acquisition date is on or after beginning of the first annual reporting period
beginning on or after December 15, 2008. Earlier application is prohibited.
At
the date of adoption, SFAS 141R is expected to have a material impact on the
Company’s results of operations and our financial position due to our
acquisition strategy.
In
May
2008 the Financial Accounting Standards Board (“FASB”) issued FASB Staff
Position (“FSP”) APB 14-1 “Accounting for Convertible Debt Instruments That May
Be Settled in Cash Upon Conversion (Including Partial Cash Settlements)”
(previously FSP APB 14-a), which will change the accounting treatment for
convertible securities that an issuer may settle fully or partially in cash.
Under the final FSP, cash-settled convertible securities will be separated
into
their debt and equity components. The value assigned to the debt component
will
be the estimated fair value, as of the issuance date, of a similar debt
instrument without the conversion feature. As a result, the debt will be
recorded at a discount to adjust its below-market coupon interest rate to the
market coupon interest rate for the similar debt instrument without the
conversion feature. The difference between the proceeds for the convertible
debt
and the amount reflected as the debt component represents the value of the
conversion feature and will be recorded as additional paid-in capital. The
debt
will subsequently be accreted to its par value over its expected life, with
an
offsetting increase in interest expense on the income statement to reflect
the
market rate for the debt component at the date of issuance.
Beginning
with fiscal 2009, and applied retrospectively to all past periods
presented, the Company will be required to adopt the provisions of FSP
APB 14-1 as they relate to the Convertible Notes. As compared to the
current accounting for the Convertible Notes, adoption of the proposal will
reduce long-term debt, increase stockholders’ equity, and reduce net income and
earnings per share. Adoption of the proposal would not affect the
Company's cash flows. The Company is currently evaluating the
impact of the adoption of FSP APB 14-1 on its financial
statements.
In
October 2008, the FASB issued FASB Staff Position No. FAS 157-3, “Determining
the Fair Value of a Financial Asset When the Market for That Asset Is Not
Active” (“FSP 157-3”). FSP 157-3 applies to financial assets within the scope of
accounting pronouncements that require or permit fair value measurements in
accordance with SFAS 157, and clarifies the application of SFAS 157 in
determining the fair values of assets or liabilities in a market that is not
active. This FSP is effective upon issuance, including prior periods for which
financial statements have not been issued. The adoption of this FSP did not
have
a material impact on the Company’s unaudited condensed consolidated financial
statements.
Seasonal
and Quarterly Fluctuations
.
The
majority of the products manufactured and sold under the Company’s brands and
licenses are for apparel, accessories, footwear and home products and decor,
for
which sales may vary as a result of holidays, weather, and the timing of product
shipments. Accordingly, a portion of the Company’s revenue from its licensees,
particularly from those mature licensees that are performing and actual sales
royalties exceed minimum royalties, may be subject to seasonal fluctuations.
The
results of operations in any quarter therefore will not necessarily be
indicative of the results that may be achieved for a full fiscal year or any
future quarter.
Other
Factors
We
continue to seek to expand and diversify the types of licensed products being
produced under our various brands, as well as diversify the distribution
channels within which licensed products are sold, in an effort to reduce
dependence on any particular retailer, consumer or market sector. The success
of
the Company, however, will still remain largely dependent on our ability to
build and maintain brand awareness and contract with and retain key licensees
and on our licensees’ ability to accurately predict upcoming fashion trends
within their respective customer bases and fulfill the product requirements
of
their particular retail channels within the global marketplace. Unanticipated
changes in consumer fashion preferences, slowdowns in the U.S. economy, changes
in the prices of supplies, consolidation of retail establishments, and other
factors noted in “Part II - Item 1A-Risk Factors,” could adversely affect our
licensees’ ability to meet and/or exceed their contractual commitments to us and
thereby adversely affect our future operating results
Effects
of Inflation.
The
Company does not believe that the relatively moderate rates of inflation
experienced over the past few years in the U.S., where it primarily competes,
have had a significant effect on revenues or profitability.
Item
3.
Quantitative
and Qualitative Disclosures about Market Risk
The
Company limits exposure to foreign currency fluctuations by requiring
substantially all of its revenue to be paid in U.S. dollars.
The
Company is exposed to potential loss due to changes in interest rates.
Investments with interest rate risk include marketable securities. Debt with
interest rate risk includes the fixed and variable rate debt. As of September
30, 2008, the Company had approximately $255.3 million in variable interest
debt
under its Term Loan Facility. See Note 4 of the Notes to Unaudited Condensed
Consolidated Financial Statements for further explanation. To mitigate interest
rate risks, the Company is utilizing derivative financial instruments such
as
interest rate hedges to convert certain portions of the Company’s variable rate
debt to fixed interest rates.
The
Company invested in certain investment grade auction rate securities. During
the
Current Nine Months, our balance of auction rate securities failed to auction
due to sell orders exceeding buy orders. These funds will not be available
to us
until a successful auction occurs or a buyer is found outside the auction
process. As a result, $10.9 million of auction rate securities were written
down
to $10.7 million as an unrealized pre-tax loss of $0.2 million to reflect a
temporary decrease in fair value. The Company believes this decrease in fair
value is temporary due to general macroeconomic market conditions, as interest
is being paid in full as scheduled, the Company has the ability to hold the
securities until an anticipated full redemption, and the underlying securities
have maintained their investment grade rating,. As the write-down of
approximately $0.2 million has been identified as a temporary decrease in fair
value, the write-down did not impact our earnings and is reflected as an other
comprehensive loss in the consolidated statement of stockholders’ equity. The
cumulative effect of the failure to auction since the third quarter of Fiscal
2007 has resulted in an accumulated other comprehensive loss of $2.3 million
which is reflected in the Stockholders’ equity section of the Unaudited
Condensed Consolidated Balance Sheet.
In
connection with the initial sale of its Convertible Notes, the Company entered
into Convertible Note Hedges with the Counterparties, which hedging transactions
are expected, but are not guaranteed, to eliminate the potential dilution upon
conversion of the convertible notes. At the same time, the Company entered
into
Sold Warrant transactions with the hedge Counterparties. In connection with
such
transactions, the hedge Counterparties entered into various over-the-counter
derivative transactions with respect to the Company’s common stock and purchased
the Company’s common stock; and they may enter into or unwind various
over-the-counter derivatives and/or purchase or sell the Company’s common stock
in secondary market transactions in the future. Such activities could have
the
effect of increasing, or preventing a decline in, the price of our common stock.
Such effect is expected to be greater in the event we elect to settle converted
notes entirely in cash. The hedge Counterparties are likely to modify their
hedge positions from time to time prior to conversion or maturity of the
convertible notes or termination of the transactions by purchasing and selling
shares of our common stock, other of our securities, or other instruments they
may wish to use in connection with such hedging. In particular, such hedging
modification may occur during any conversion reference period for a conversion
of notes. In addition, we intend to exercise options we hold under the
convertible note hedge transactions whenever notes are converted and we have
elected, with respect to such conversion, to pay a portion of the consideration
then due by us to the note holder in shares of our common stock. In order to
unwind their hedge positions with respect to those exercised options, the hedge
counterparties will likely sell shares of our common stock in secondary market
transactions or unwind various over-the-counter derivative transactions with
respect to our common stock during the conversion reference period for the
converted notes. The effect, if any, of any of these transactions and activities
on the trading price of our common stock will depend in part on market
conditions and cannot be ascertained at this time, but any of these activities
could adversely affect the value of our common stock. Also, the Sold Warrant
transaction could have a dilutive effect on our earnings per share to the extent
that the price of our common stock exceeds the strike price of the
warrants.
On
September 15, 2008 and October 3, 2008, respectively, Lehman Holdings and Lehman
OTC, filed for protection under Chapter 11 of the United States Bankruptcy
Code
in the United States Bankruptcy Court in the Southern District of New York.
The
Company currently believes that the bankruptcy filings and their potential
impact will not have a material adverse effect on the Company’s financial
position, results of operations or cash flows. The Company will continue to
monitor the bankruptcy filings of Lehman Holdings and Lehman OTC. The terms
of
the Convertible Notes and the rights of the holders of the Convertible Notes
are
not affected in any way by the bankruptcy filings of Lehman Holdings or Lehman
OTC.
Item
4.
Controls
and Procedures
The
Company, under the supervision and with the participation of its management,
including its principal executive officer and principal financial officer,
evaluated the effectiveness of the design and operation of its disclosure
controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the
Securities Exchange Act of 1934 (the “Exchange Act”)) as of the end of the
period covered by this report. The purpose of disclosure controls is to ensure
that information required to be disclosed in our reports filed with or submitted
to the SEC under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the SEC’s rules and forms.
Disclosure controls are also designed to ensure that such information is
accumulated and communicated to our management, including our principal
executive officer and principal financial officer, to allow timely decisions
regarding required disclosure.
Based
on
this evaluation, the principal executive officer and principal financial officer
concluded that the Company’s disclosure controls and procedures are effective in
timely alerting them to material information required to be included in our
periodic SEC filings and ensuring that information required to be disclosed
by
the Company in the reports that it files or submits under the Exchange Act
is
recorded, processed, summarized and reported within the time period specified
in
the SEC’s rules and forms.
The
principal executive officer and principal financial officer also conducted
an
evaluation of internal control over financial reporting (“Internal Control”) to
determine whether any changes in Internal Control occurred during the quarter
ended September 30, 2008 that may have materially affected or which are
reasonably likely to materially affect Internal Control. Based on that
evaluation, there has been no change in the Company’s Internal Control during
the quarter ended September 30, 2008 that has materially affected, or is
reasonably likely to affect, the Company’s Internal Control.
PART
II. Other Information
Item
1.
Legal
Proceedings
See
Note
9 of Notes to Unaudited Condensed Consolidated Financial
Statements.
Item
1A.
Risk
Factors.
In
addition to the risk factors disclosed in Part 1, Item 1A, “Risk Factors” of our
Annual Report on Form 10-K for the year ended December 31, 2007, set forth
below
are certain factors that have affected, and in the future could affect, our
operations or financial condition. We operate in a changing environment that
involves numerous known and unknown risks and uncertainties that could impact
our operations. The risks described below and in our Annual Report on Form
10-K
for the year ended December 31, 2007 are not the only risks we face. Additional
risks and uncertainties not currently known to us or that we currently deem
to
be immaterial also may materially adversely affect our financial condition
and/or operating results.
Our
existing and future debt obligations could impair our liquidity and financial
condition, and in the event we are unable to meet our debt obligations we could
lose title to our trademarks.
As
of
September 30, 2008, we had consolidated debt of approximately $672.5 million,
including secured debt of $377.7 million ($255.3 million under our Term Loan
Facility and $122.4 million under Asset-Backed Notes issued by our subsidiary,
IP Holdings), primarily all of which was incurred in connection with our
acquisition activities. We may also assume or incur additional debt, including
secured debt, in the future in connection with, or to fund, future acquisitions.
Our debt obligations:
·
|
could
impair our liquidity;
|
·
|
could
make it more difficult for us to satisfy our other
obligations;
|
·
|
require
us to dedicate a substantial portion of our cash flow to payments
on our
debt obligations, which reduces the availability of our cash flow
to fund
working capital, capital expenditures and other corporate
requirements;
|
·
|
could
impede us from obtaining additional financing in the future for working
capital, capital expenditures, acquisitions and general corporate
purposes;
|
·
|
impose
restrictions on us with respect to future
acquisitions;
|
·
|
make
us more vulnerable in the event of a downturn in our business prospects
and could limit our flexibility to plan for, or react to, changes
in our
licensing markets; and
|
·
|
place
us at a competitive disadvantage when compared to our competitors
who have
less debt.
|
While
we
believe that by virtue of the guaranteed minimum royalty payments due to us
under our licenses we will generate sufficient revenues from our licensing
operations to satisfy our obligations for the foreseeable future, in the event
that we were to fail in the future to make any required payment under agreements
governing our indebtedness or fail to comply with the financial and operating
covenants contained in those agreements, we would be in default regarding that
indebtedness. A debt default could significantly diminish the market value
and
marketability of our common stock and could result in the acceleration of the
payment obligations under all or a portion of our consolidated indebtedness.
In
the case of our Term Loan Facility, it would enable the lenders to foreclose
on
the assets securing such debt, including the Ocean Pacific/OP, Danskin,
Rocawear, Starter and Mossimo trademarks, as well as the trademarks acquired
by
us in connection with the Official-Pillowtex acquisition, and, in the case
of IP
Holdings’ Asset-Backed Notes, it would enable the holders of such notes to
foreclose on the assets securing such notes, including the Candie’s, Bongo, Joe
Boxer, Rampage, Mudd and London Fog trademarks.
A
substantial portion of our licensing revenue is concentrated with a limited
number of licensees such that the loss of any of such licensees could decrease
our revenue and impair our cash flows.
Our
licensees Target, Kohl's, Kmart were our three largest direct-to-retail
licensees during the Current Nine Months, representing approximately 12%, 5%
and
5%, respectively, of our total revenue for such period, while Li & Fung was
our largest wholesale licensee, representing approximately 11% of our total
revenue for such period. Our license agreement with Target grants it the
exclusive U.S. license with respect to the Mossimo trademark for substantially
all Mossimo-branded products for an initial term expiring in January 2010,
and
our other license agreement with Target grants it the exclusive U.S. license
with respect to our Fieldcrest trademark for substantially all
Fieldcrest-branded products for an initial term expiring in July 2010; our
license agreement with Kohl's grants it the exclusive U.S. license with respect
to the Candie's trademark for a wide variety of product categories for a term
expiring in January 2011; and, our license agreement with Kmart grants it the
exclusive U.S. license with respect to the Joe Boxer trademark for a wide
variety of product categories for a term expiring in December 2010. Our license
agreements with Li & Fung grant it the exclusive worldwide license with
respect to our Royal Velvet trademarks for a variety of products, and the
exclusive license (outside the U.S. and Canada) for the Cannon trademark for
a
variety of products. The term for each of these licenses with Li & Fung
expires on December 31, 2013. Because we are dependent on these licensees for
a
significant portion of our licensing revenue, if any of them were to have
financial difficulties affecting its ability to make guaranteed payments, or
if
any of these licensees decides not to renew or extend its existing agreement
with us, our revenue and cash flows could be reduced substantially. For example,
as of September 2006, Kmart had not approached the sales levels of Joe Boxer
products needed to trigger royalty payments in excess of its guaranteed minimums
since 2004, and, as a result, when we entered into the current license agreement
with Kmart in September 2006 expanding its scope to include Sears stores and
extending its term from December 2007 to December 2010, we agreed to reduce
the
guaranteed annual royalty minimums by approximately half, as a result of which
our revenues from this license were substantially reduced.
We
have a material amount of goodwill and other intangible assets, including our
trademarks, recorded on our balance sheet. As a result of changes in market
conditions and declines in the estimated fair value of these assets, we may,
in
the future, be required to write down a portion of this goodwill and other
intangible assets and such write-down would, as applicable, either decrease
our
net income or increase our net loss.
As
of
September 30, 2008, goodwill represented approximately $133.4 million, or
approximately 10% of our total assets, and trademarks and other intangible
assets represented approximately $1,033.3 million, or approximately 75% of
our total assets. Under SFAS No. 142, goodwill and indefinite life
intangible assets, including some of our trademarks, are no longer amortized,
but instead are subject to impairment evaluation based on related estimated
fair
values, with such testing to be done at least annually. While, to date, no
impairment write-downs have been necessary, any write-down of goodwill or
intangible assets resulting from future periodic evaluations would, as
applicable, either decrease our net income or increase our net loss and those
decreases or increases could be material.
Changes
in the accounting method for convertible debt securities will, when adopted
by
us, have an adverse impact on our reported or future financial
results.
For
the
purpose of calculating diluted earnings per share, a convertible debt security
providing for net share settlement of the excess of the conversion value over
the principal amount, if any, and meeting specified requirements under Emerging
Issues Task Force, or EITF, Issue No. 90-19, “Convertible Bonds with Issuer
Option to Settle for Cash upon Conversion,” such as our convertible notes, is
accounted for similar to non-convertible debt, with the stated coupon
constituting interest expense and any shares issuable upon conversion of the
security being accounted for under the treasury stock method. The effect of
the
treasury stock method in relation to our Convertible Notes is that the shares
potentially issuable upon conversion of the Convertible Notes are not included
in the calculation of our diluted earnings per share until the conversion price
is “in the money,” at which time we are assumed to have issued the number of
shares of common stock necessary to settle.
In
May
2008 the Financial Accounting Standards Board (“FASB”) issued FASB Staff
Position (“FSP”) APB 14-1 “Accounting for Convertible Debt Instruments That May
Be Settled in Cash Upon Conversion (Including Partial Cash Settlements)”
(previously FSP APB 14-a), which will change the accounting treatment for
convertible securities that the issuer may settle fully or partially in cash.
Under the final FSP, cash-settled convertible securities will be separated
into
their debt and equity components. The value assigned to the debt component
will
be the estimated fair value, as of the issuance date, of a similar debt
instrument without the conversion feature. As a result, the debt will be
recorded at a discount to adjust its below-market coupon interest rate to the
market coupon interest rate for the similar debt instrument without the
conversion feature. The difference between the proceeds for the convertible
debt
and the amount reflected as the debt component represents the value of the
conversion feature and will be recorded as additional paid-in capital. The
debt
will subsequently be accreted to its par value over its expected life, with
an
offsetting increase in interest expense on the income statement to reflect
the
market rate for the debt component at the date of issuance.
Beginning
with fiscal 2009, and applied retrospectively to all past periods presented,
we
will be required to adopt the provisions of FSP APB 14-1 as they relate to
our
Convertible Notes. As compared to our current accounting for our Convertible
Notes, adoption of the proposal will reduce long-term debt, increase
stockholders’ equity, and reduce net income and earnings per share. Adoption of
the proposal would not affect our cash flows. We are currently evaluating the
impact of the adoption of FSP APB 14-1 on our financial statements.
At
the
time FSP APB 14-1 is implemented we will, pursuant to the terms of the indenture
governing our outstanding Convertible Notes, have the right for a period of
90
days thereafter, at our option, to call the Convertible Notes for redemption.
However, although we will have such redemption right, we may not have sufficient
cash to pay, or may not be permitted to pay, the required cash portion of the
consideration that would be due to holders of the convertible notes in the
event
we elected to exercise such right or the ability to raise funds through debt
or
equity financing within the time period required for us to make such an
election.
Convertible
note hedge and warrant transactions that we have entered into may affect the
value of our common stock.
In
connection with the initial sale of our Convertible Notes, we entered into
Convertible Note Hedges with the Counterparties, which hedging transactions
are
expected, but are not guaranteed, to eliminate the potential dilution upon
conversion of the convertible notes. At the same time, we entered into Sold
Warrant transactions with the hedge counterparties. In connection with such
transactions, the hedge Counterparties entered into various over-the-counter
derivative transactions with respect to our common stock and purchased our
common stock; and they may enter into or unwind various over-the-counter
derivatives and/or purchase or sell our common stock in secondary market
transactions in the future.
Such
activities could have the effect of increasing, or preventing a decline in,
the
price of our common stock. Such effect is expected to be greater in the event
we
elect to settle converted notes entirely in cash. The hedge Counterparties
are
likely to modify their hedge positions from time to time prior to conversion
or
maturity of the convertible notes or termination of the transactions by
purchasing and selling shares of our common stock, other of our securities,
or
other instruments they may wish to use in connection with such hedging. In
particular, such hedging modification may occur during any conversion reference
period for a conversion of notes. In addition, we intend to exercise options
we
hold under the convertible note hedge transactions whenever notes are converted
and we have elected, with respect to such conversion, to pay a portion of the
consideration then due by us to the note holder in shares of our common stock.
In order to unwind their hedge positions with respect to those exercised
options, the hedge Counterparties will likely sell shares of our common stock
in
secondary market transactions or unwind various over-the-counter derivative
transactions with respect to our common stock during the conversion reference
period for the converted notes.
The
effect, if any, of any of these transactions and activities on the trading
price
of our common stock will depend in part on market conditions and cannot be
ascertained at this time, but any of these activities could adversely affect
the
value of our common stock. Also, the sold warrant transaction could have a
dilutive effect on our earnings per share to the extent that the price of our
common stock exceeds the strike price of the warrants.
On
September 15, 2008 and October 3, 2008, respectively, Lehman Holdings and Lehman
OTC, filed for protection under Chapter 11 of the United States Bankruptcy
Code
in the United States Bankruptcy Court in the Southern District of New York.
The
Company currently believes, although there can be no assurance, that the
bankruptcy filings and their potential impact on these entities will not have
a
material adverse effect on the Company’s financial position, results of
operations or cash flows. The Company will continue to monitor the bankruptcy
filings of Lehman Holdings and Lehman OTC.
Due
to the recent downturn in the market, certain of the marketable securities
we
own may take longer to auction than initially anticipated, if at
all.
Marketable
securities consist of investment grade auction rate securities. From the third
quarter of 2007 to the present, our balance of auction rate securities failed
to
auction due to sell orders exceeding buy orders. These funds will not be
available to us until a successful auction occurs or a buyer is found outside
the auction process. As a result, $13.0 million of auction rate securities
were
written down to $10.7 million, based on our analysis, as an unrealized pre-tax
loss to reflect a temporary decrease in fair value, reflected as an accumulated
other comprehensive loss of $2.3 million in the stockholders’ equity section of
our unaudited condensed consolidated balance sheet. We believe this decrease
in
fair value is temporary due to general macroeconomic market conditions, as
the
underlying securities have maintained their investment grade rating. There
are
no assurances that a successful auction will occur, or that we can find a buyer
outside the auction process.
A
decline in general economic conditions resulting in a decrease in
consumer-spending levels and an inability to access capital may adversely affect
our business.
Many
economic factors beyond our control may impact our forecasts and actual
performance. These factors include consumer confidence, consumer spending
levels, employment levels, availability of consumer credit, recession,
deflation, inflation, a general slowdown of the U.S. economy or an uncertain
economic outlook. Furthermore, changes in the credit and capital markets,
including market disruptions, limited liquidity and interest rate fluctuations,
may increase the cost of financing or restrict our access to potential sources
of capital for future acquisitions.
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds.
The
following table represents information with respect to purchases of common
stock
made by the Company during the three months ended September 30,
2008:
Month of purchase
|
|
Total number
of shares
purchased
(1)
|
|
Average
price
paid per share
|
|
Total number
of
shares
purchased as
part of
publicly
announced
plans or
programs
|
|
Maximum
dollar
value of
shares
that may yet
be
purchased
under the
plans or
programs
|
|
July 1 – July
31, 2008
|
|
|
308
|
|
$
|
11.03
|
|
$
|
-
|
|
$
|
-
|
|
August
1 – August 31, 2008
|
|
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
September 1
- September 30, 2008
|
|
|
3,413
|
|
$
|
13.08
|
|
$
|
-
|
|
$
|
-
|
|
Total
|
|
|
3,721
|
|
$
|
12.91
|
|
$
|
-
|
|
$
|
-
|
|
(1)
|
|
Represents
shares of common stock surrendered to the Company to pay employee
withholding taxes due upon the vesting of restricted
stock.
|
EXHIBIT
NO.
|
|
DESCRIPTION
OF EXHIBIT
|
|
|
|
Exhibit
10.1
|
|
Iconix
Brand Group, Inc. 2006 Equity Incentive Plan, as amended
(1)*
|
|
|
|
Exhibit
10.2
|
|
Transition
Services Agreement between the Company and David Conn
(2)
|
|
|
|
Exhibit
10.3
|
|
Asset
Purchase Agreement by and among NexCen Brands, Inc., NexCen Fixed
Asset
Company, LLC, NexCen Brand Management, Inc., WV IP Holdings, LLC,
and the
Company dated September 29, 2008 (3)
.
|
|
|
|
Exhibit
31.1
|
|
Certification
of Chief Executive Officer Pursuant To Rule 13a-14 or 15d-14 of The
Securities Exchange Act of 1934, As Adopted Pursuant To Section 302
Of The
Sarbanes-Oxley Act of 2002
|
|
|
|
Exhibit
31.2
|
|
Certification
of Chief Financial Officer Pursuant To Rule 13a-14 or 15d-14 of The
Securities Exchange Act of 1934, As Adopted Pursuant To Section 302
Of The
Sarbanes-Oxley Act of 2002
|
|
|
|
Exhibit
32.1
|
|
Certification
of Chief Executive Officer Pursuant To 18 U.S.C. Section 1350, As
Adopted
Pursuant To Section 906 of The Sarbanes-Oxley Act of
2002
|
|
|
|
Exhibit
32.2
|
|
Certification
of Chief Financial Officer Pursuant To 18 U.S.C. Section 1350, As
Adopted
Pursuant To Section 906 of The Sarbanes-Oxley Act of
2002
|
(1)
Filed
as
an exhibit to the Company’s Current Report on Form 8-K for the event dated July
31, 2008 and incorporated by reference herein.
(2)
Filed
as
an exhibit to the Company’s Current Report on Form 8-K for the event dated
August 13, 2008 and incorporated by reference herein.
(3)
Filed
as
an exhibit to the Company’s Current Report on Form 8-K for the event dated
September 29,
,
2008
and
incorporated by reference herein.
*
Denotes
management compensation plan or arrangement.
Signatures
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
|
Iconix
Brand Group, Inc.
(Registrant)
|
|
|
Date:
November 5, 2008
|
/s/
Neil
Cole
|
|
Neil
Cole
Chairman
of the Board, President
and
Chief Executive Officer
(on
Behalf of the Registrant)
|
Date:
November 5, 2008
|
/s/
Warren Clamen
|
|
Warren
Clamen
Chief
Financial Officer
|
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